THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

RIVERSIDE 

GIFT  OF 

Dr.  Gordon  Watkins 


LIBRAHY 
UNIVERSITY  OF 

RIVERSIDE 


EDITED    BY   THE    FACULTY  OF  POLITICAL   SCIENCE   OF 

COLUMBIA  UNIVERSITY 
IN   THE   CITY   OF   NEW   YORK 


Volume  IX] 


[Number  2 


GERMAN  WAGE  THEORIES 


A  HISTORY  OF  THEIR  DEVELOPMENT 


BY 


JAMES  W.  CROOK,  Ph.D. 

Sometime  University  Fellow  in  Economics 
Assistant  Professor  of  Political  Economy,  Amherst  College 


COLUMBIA  UNIVERSITY 
Jfteto 
1898 


COLUMBIA  UNIVERSITY 

Faculty  of  Political  Science. 

Seth  Low,  LL.  D.,  President.  J.  W.  Burgess,  LL.  D.,  Professor  of  Political 
Science  and  Constitutional  Law.  Richmond  Mayo-Smith,  Ph.D.,  Professor  of 
Political  Economy.  Munroe  Smith,  J.U.D.,  Professor  of  Comparative  Juris- 
prudence. F.  J.  Goodnow,  LL.D.,  Professor  of  Administrative  Law.  E  R. 
A.  Seligman,  Ph.D.,  Professor  of  Political  Economy  and  Finance.  H.  L. 
OsgOOd,  Ph.D.,  Professor  of  History.  Wm.  A.  Dunning,  Ph.D.,  Professor  of 
History.  J.  B.  Moore,  A.  M.,  Professor  of  international  Law.  P.  H.  Giddings, 
A.M.,  Professor  of  Sociology.  J.  B.  Clark,  Ph.D.,  Professorof  Political  Economy. 
J.  H.  Robinson,  Ph.D.,  Professor  of  History.  W.  M.  Sloane,  L.H.D.,  Pro- 
fessor of  History.  Edmond  Kelly,  Lecturer  on  New  York  History.  G.  L. 
Beer,  A.M.,  Lecturer  on  Mediaeval  History.  A.  M.  Day,  A.M.,  Assistant  in 
Economics.  W.  Z.  Ripley,  Ph.D.,  Lecturer  on  Anthropology.  Wm.  R.  Shep- 
herd, Ph.  D.,  Lecturer  on  European  History.  G.  J.  Bayles,  Lecturer  on 
Sociology.  G.  E.  Merriam,  Jr.,  A.  M.,  Lecturer  on  Political  Theory. 


COURSES  OF  LECTURES. 

I.  HISTORY. — [i]   History  of  Rome  ;  [2]  Rise  of  the  Holy  Roman  Empire ;  [3]  Sources  of 


listory  of  the  United  States  ;  [  18,  19]  American  Colonial  History  during  the  Seventeenth  and  Eigh- 
teenth Centuries ;  [20]  The  War  of  1812  ;  [21]  United  States  during  Civil  War  and  Reconstruction  ; 
[22]  Seminar  in  European  History  ;  [23!  Seminar  in  American  Colonial  History. 

H.  ECONOMICS  AND  SOCIAL  SCIENCE.— [il  Economic  History ;  [2]  Outlines  of  Econo- 
mics ;  [3]  Practical  Political  Economy;  [4]  Science  of  Finance;  [5]  Fiscal  and  Industrial  History  of 
the  United  States  ;  [6]  Railroad  Problems ;  [7]  History  of  Economics  ;  [8]  Static  Theory  of  Dis- 
tribution ;  [9]  Dynamic  Theory  of  Distribution;  [10]  Communism  and  Socialism  ;  [nj  Theories  of 
Social  Reform;  [12]  Principles  of  Sociology;  [13]  Applied  Anthropology;  [14]  Statistics  and  Sociol- 
ogy; [15]  Statistics  and  Economics;  [i6J  Theory  of  Statistics  ;  [17]  General  Sociology;  [18]  Pro- 
gress and  Democracy;  [igj  Pauperism  and  Charities;  [20]  Crime  and  Penology;  [21]  Civil 
Aspects  of  Ecclesiastical  Organizations  ;  [22]  Seminar  in  Political  Economy  and  Finance ;  [23] 
Laboratory  Work  in  Statistics  ;  [24]  Seminar  in  Sociology  and  Statistics. 

m.  CONSTITUTIONAL  AND  ADMINISTRATIVE  LAW.— [i]  Comparative  Constitutional 
Law  of  Europe  and  the  United  States ;  [2]  Comparative  Constitutional  Law  of  the  Commonwealths 
of  the  United  States ;  [3]  Comparative  Administrative  Law  of  the  United  States  and  the  Principal 
European  States ;  [4]  Law  of  Taxation;  [5]  Municipal  Government ;  [6]  Seminar  in  Constitutional 
Law ;  [7]  Seminar  in  Administration. 

TV.  DIPLOMACY  AND  INTERNATIONAL  LAW.— [t]  History  of  European  Diplomacy; 
[2]  History  of  American  Diplomacy  ;  [3]  Principles  of  International  Law ;  [4]  Criminal  Law  and 
Extradition  ;  [5]  Seminar  in  International  Law. 

V.  ROMAN  LAW  AND  COMPARATIVE  JURISPRUDENCE.-^]  History  and  Institutes 
of  Roman  Law ;  [2]  Roman  Law,  Cases  from  the  Digest  ;  [3]  History  of  European  Law ;  [4]  Com- 
parative Jurisprudence;  [5]  International  Private  Law;  [6]  Seminar  in  Legal  History  and  Com- 
parative Legislation. 

VI.  POLITICAL  PHILOSOPHY.— [i]  History  of  Political  Theories,  ancient -and  mediaeval; 
[a]  History  of  Political  Theories,  modern  ;  [3]  History  of  American  Political  Philosophy;  [4]  Semi- 
nar in  Political  Philosophy. 


The  course  of  study  covers  three  years,  at  the  end  of  which  the  degree  of  Ph.D. 
may  be  taken.  Any  person  not  a  candidate  for  a  degree  may  attend  any  of  the 
courses  at  any  time  by  payment  of  a  proportional  fee.  Twenty  four  fellowships 
of  $500  each,  and  thirty-four  scholarships  of  $150  each  are  awarded  to  advanced 
students.  Several  prizes  of  from  $50  to  $150  are  awarded  annually.  Three  prize 
lectureships  of  $500  each  for  three  years  are  open  to  competition  of  graduates. 
The  library  contains  over  260,000  volumes.  For  further  information  address 
REGISTRAR. 


II 


GERMAN  WAGE  THEORIES 


A  HISTORY  OF  THEIR  DEVELOPMENT 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

RIVERSIDE 


GIFT  OF 

Dr.  Gordon  Watkins 


STUDIES  IN  HISTORY,  ECONOMICS  AND  PUBLIC  LAW 

EDITED    BY   THE    FACULTY  OF   POLITICAL   SCIENCE   OF 

COLUMBIA  UNIVERSITY 
IN   THE   CITY   OF    NEW    YORK 

Volume  IX]  [Number  2 


GERMAN  WAGE  THEORIES 


A  HISTORY  OF  THEIR  DEVELOPMENT 


v 

BY 


JAMES  w  CROOK,  Ph.D. 

Sometime  University  Fellow  in  Economics 
Assistant  Professor  of  Political  Economy,  Amherst  College 


COLUMBIA  UNIVERSITY 
JSeto 
1898 


TABLE  OF  CONTENTS 


PACK 

INTRODUCTION 7 

CHAPTER  I 
PREDECESSORS  OF  HERMANN 15 

CHAPTER  II 
HERMANN 23 

CHAPTER  III 
HERMANN'S  SUCCESSORS 33 

CHAPTER  IV 
CRITICISM 55 

CHAPTER  V 
VON  THUNEN 68 

CHAPTER  VI 
THE  SOCIALISTS 94 

CHAPTER  VII 

SCHULZE-GXVERNITZ 107 

(v) 


INTRODUCTION 


EVER  since  political  economy  received  its  modern  form  at 
the  hands  of  Adam  Smith,  the  theory  of  wages  has  been  in 
controversy.  What  is  true  of  many  economic  questions  is  true 
of  this  one :  the  germs  of  later  and  more  complete  develop- 
ments are  found  in  the  Wealth  of  Nations.  Problems  peculiar 
to  the  periods  of  historical  evolution  since  the  time  of  Adam 
Smith  have  brought  into  prominence  one  or  more  of  the  truths 
which  he  perceived.  The  system  of  natural  liberty  which 
he  so  tenaciously  advocated  brought  the  demand  for  its  com- 
plement and  condition — equality.  But  if  the  history  of  this 
century  records  a  growing  recognition  of  freedom  for  all 
classes,  it  has  also  disclosed  an  obstacle  to  the  realization 
of  freedom,  viz.,  economic  weakness.  The  demand  for  equality 
comes  from  the  economically  weak,  the  wage  receivers. 
Hence,  the  investigation  of  the  economic  forces  which  deter- 
mine the  incomes  of  those  classes  becomes  an  important  in- 
quiry. Thus  from  a  practical  point  of  view  the  work  done  in 
this  field  by  scientists  of  more  than  one  nation  is  amply 
justified. 

If  science  is  not  international,  it  ought  to  be  so,  to  such  an 
extent  that  the  important  work  of  one  country  be  not  unknown 
to  another.  A  survey  of  the  somewhat  voluminous  German 
literature  upon  the  subject  of  wages  shows  that,  for  half  a  cen- 
tury after  the  publication  of  the  Wealth  of  Nations,  almost  no 
original  work  is  to  be  found.  That  there  was  no  lack  of  acad- 
emic activity  is  clear  from  the  number  of  university  text-books 
issued.  These,  however,  for  the  most  part  repeat,  summarize 
or  but  slightly  modify  the  reasoning  and  conclusions  of  Adam 
303]  7 


g  GERMAN  WAGE  THEORIES  [304 

Smith.  The  conditions  of  economic  life  in  the  two  countries 
at  this  period  were  very  different.  There  was  wanting  on  Ger- 
man soil  the  stimulating  influence  of  unsolved  practical  prob- 
lems of  economics.  The  "industrial  revolution"  developed 
more  slowly  on  the  continent.  There  were  lacking  those 
conditions  so  favorable  to  the  growth  of  industry.  England's 
insular  position  allowed  a  degree  of  political  unity  and  com- 
parative certainty  of  political  destiny  such  as  was  hardly  pos- 
sible to  a  continental  state  closely  surrounded  by  jealous 
neighbors  or  agitated  by  the  contending  forces  inherent  in  a 
loose  federation.1  The  political  solution  must  precede  the 
economic.  The  English  people  have  also  possessed,  to  a  re- 
markable degree,  those  moral  capacities  which  underlie  any 
considerable  industrial  progress,  the  capacity  to  labor  and  to 
co-operate.  If  we  add  to  these  facts  the  favorable  climate, 
easy  communication  by  land  and  sea,  and  abundant  supplies 
of  coal  and  iron,  we  may  reasonably  account  for  England's 
industrial  leadership.2 

The  series  of  remarkable  inventions,  beginning  with  that  of 
Hargreaves,  established  the  factory  system,  stimulated  the 
growth  of  industrial  towns,  and  brought  into  contrast  the  in- 
terests of  laborers  and  employers.  While  this  contrast  was 
not  exactly  a  new  one,  yet  it  was  never  sufficiently  intense  till 
then  to  force  the  legal  barriers  to  labor  combination.  The 
place  which  the  labor  problem  has  occupied  in  the  British 
mind  may  be  roughly  measured  by  that  legislative  accumula- 
tion known  as  the  Factory  Acts,  which  have  been  a  model  for 
similar  legislation  by  other  nations. 

All  this  is  in  contrast  with  the  German  condition.  There 
the  old  industrial  order  with  its  restrictions  and  conservative 
methods  prevailed  long  after  England  had  replaced  the  old 
with  the  new.  Schulze-Gaevernitz3  has  described  the  methods 

1  List,  National  System,  p.  53. 

2  Hobson,  Modern  Capitalism,  p.  73  ff. 
„  Grossbetrieb,  p.  34. 


205]  INTRODUCTION  g 

which  prevailed  in  the  i8th  century  throughout  Germany. 
"  Everything  was  done  by  rule.  Spinning  came  under  public 
inspection  and  the  yarn  was  collected  by  officials.  The  privi- 
lege of  weaving  was  confined  to  the  fraternity  of  the  guild. 
Methods  of  production  were  strictly  prescribed;  public  in- 
spectors exercised  control.  Defects  in  weaving  were  visited 
with  punishment.  Moreover,  the  right  of  dealing  in  cotton 
goods  was  confined  to  the  confraternity  of  the  merchant  guild; 
to  be  a  master  weaver  had  almost  the  significance  of  a  public 
office.  Besides  other  qualifications,  there  was  the  condition 
of  a  formal  examination.  The  sale  also  was  under  strict 
supervision ;  for  a  long  time  a  fixed  price  prevailed,  and  a 
maximum  sale  was  officially  prescribed  for  each  dealer.  The 
dealer  had  to  dispose  of  his  wares  to  the  weaver,  because  the 
latter  had  guaranteed  to  him  a  monopoly  of  export  trade." x 
How  comparatively  little  progress  Germany  had  made  with 
machine  industry  under  these  conditions  is  indicated  by  the 
following  facts.  In  1882,  42  per  cent,  of  the  German  textile 
industry  was  still  conducted  in  the  home  or  domestic  work- 
shop, while  only  38  per  cent,  was  carried  on  in  factories  em- 
ploying more  than  50  persons.  More  weavers  were  still  en- 
gaged with  hand  looms  than  with  power-looms,  and  the  latter 
was  so  little  developed  that  the  hand  loom  could  still  hold  its 
own  in  many  articles.  Knitting,  lace  making  and  other  minor 
textile  industries  are  still  in  the  main  home  industries.2  List, 
in  1844,  laments  the  comparative  infancy  of  German  manufac- 
tures and  continually  seeks  to  impress  upon  his  readers  the 
industrial  superiority  of  England.  Marx  finds  England  the 
paradise  of  capitalistic  production,  and  although  familiar  with 
German  conditions  draws  no  important  illustrations  from  his 
native  country.  Writing  as  late  as  1873  he  declared  that  polit- 
ical economy  was  in  Germany  a  foreign  science,  there  having 

1  Quoted  by  Hobson,  Modern  Capitalism,  p.  78. 

s  Quoted  from  Social  Peace,  p.  113,  by  Hobson,  p.  78. 


IO  GERMAN  WAGE  THEORIES  [306 

existed  there  no  soil  for  its  growth.1  Lassalle  found  German 
laborers  unorganized  and  so  inured  to  custom  as  to  be  almost 
deaf  to  his  passionate  appeals. 

These  differences  between  the  two  countries  may  adequately 
account  for  the  great  disparity  in  theoretic  development.  The 
existence  of  problems  calls  for  solution;  solution  requires  con- 
structive theoretic  foundations.  That  this  is  the  natural  order 
is  abundantly  shown  in  finance.  Financial  difficulties  or  prob- 
lems have  necessarily  preceded  any  considerable  determination 
of  the  science  of  finance  in  modern  nations.  The  new  condi- 
tions and  new  relations  involved  in  machine  production,  or  the 
great  industry  (Grossbetrieb)  bring  into  relief  the  interests  of 
classes  and  make  necessary  a  scientific  determination  of  both 
productive  and  distributive  forces. 

Experience  has  demonstrated  that  it  is  usually  in  connection 
with  industries  other  than  agricultural  that  the  problems  pe- 
culiar to  the  relation  of  employer  and  employed  come  to  the 
front.  The  classes  subordinated  come  to  feel  their  position,  they 
startle  society  by  proclaiming  some  unusual  doctrine  or  by  per- 
forming some  destructive  act.  Then  the  scientist  sets  about 
understanding  the  phenomena.  This  is  the  usual  sequence, 
but  the  work  of  von  Thiinen  would  seem  to  furnish  an  excep- 
tion to  this  order.  As  an  agriculturalist  he  became  impressed 
with  the  dangers  involved  in  the  existence  of  the  economic  gulf 
separating  classes,  in  advance  of  the  feelings  of  those  classes 
themselves.  As  early  as  1826  he  began  a  series  of  original 
investigations  in  connection  with  agricultural  production,  which 
in  the  course  of  twenty-five  years  yielded  results  that  for  orig- 
inality and  value  may  be  compared  with  some  of  the  best  work 
of  Ricardo.  Moreover,  as  proof  of  his  practical  interest,  and 
to  give  his  theories  of  distribution  a  practical  test,  he  used  his 
agricultural  estate  for  purposes  of  social  experiment.  When 
Rau  published  the  first  edition  of  his  political  economy  (1826) 

1  Preface  to  2d  ed.  of  Capital. 


307] 


INTRODUCTION 


Germany  had  made  some  start  in  national  activity  which  gave 
rise  to  industrial  problems.  Seven  years  later  Hermann  broke 
the  parallel  course  of  English  and  German  economic  writing, 
and  started  Germans  on  a  path  of  their  own,  which  they  have 
not  wholly  ceased  to  follow  to  this  day. 

Before  studying  theories  themselves,  it  will  be  useful  to  take 
some  notice  of  terminology.  The  term  wages  as  used  by  the 
different  authors  does  not  always  include  the  same  kinds  of 
income.  It  is  not  unnatural  that  men,  writing  under  different 
economic  conditions,  and  at  periods  so  separated  by  time  as  the 
writers  brought  under  review  in  this  essay,  should  differ  in  the 
use  of  a  word  like  wages,  or  a  phrase  like  wage-class.  There  is 
great  lack  of  unanimity  even  now,  as  will  be  seen  by  a  compar- 
ison of  the  advocacy  of  different  or  competing  views  held  by 
Walker,  George  or  Sidgwick.  As  to  definition,  the  Germans  did 
not  always  follow  Adam  Smith.  The  latter  said  that  the  wages 
of  labor  were  everywhere  understood  to  be  what  they  usually 
were,  when  the  laborer  was  one  person  and  the  owner  of  the 
stock  which  employs  him  another.1  This  would  confine  wages 
to  the  income  of  laborers  employed  by  owners  of  capital  in  the 
course  of  operations  undertaken  for  a  profit.  It  will  not  be 
necessary  to  point  out  here  how  Adam  Smith  departed  from 
this  definition  in  his  treatment  of  wages. 

Schmalz  defines  wages  as  the  income  which  men  receive  from 
others  for  important  or  unimportant,  honorable  or  despicable 
services.  Accordingly,  he  classes  generals,  state  ministers 
and  even  pensioners  as  wage-earners.  There  is  nothing  in 
his  subsequent  treatment  to  reveal  the  gain  of  such  a  classifi- 
cation.2 Rau  broadens  the  meaning  to  include  what  the 
undertaker  saves  out  of  his  business  to  pay  for  his  own  activ- 
ity —  the  equivalent  of  what  he  would  otherwise  have  to  pay  as 
wages.  This  is  the  modern  conception  of  wages  of  superin- 

1  Wealth  of  Nations,  Rogers'  ed.,  1869,  v.  i,  p.  69. 
J  Staats-wirthschaftslehre  in  Brief  en,  v.  I,  p.  23. 


I2  GERMAN  WAGE  THEORIES  [308 

tendance.1  However,  in  the  8th  ed.  he  considers  that  the 
most  important  case  arises  when  over  against  the  worker  there 
is  a  wage-giver  with  whom  he  contracts  for  definite  wages.2 
Fulda  does  a  similar  thing  when  he  makes  a  part  of  the  in- 
come of  the  capitalist  his  wages.  But  he  has  a  different  meas- 
ure for  the  amount.  He  says  the  business  man,  during  the 
time  he  is  in  business,  must  satisfy  his  needs  for  food  and 
shelter  according  to  the  degree  of  his  culture.  He  must  also 
hold  his  capital  in  that  condition  which  is  required  to  prose- 
cute his  business.  The  part  which  his  necessary  support  re- 
quires is  his  necessary  wages;  the  part  which  his  capital 
requires  is  his  necessary  profit.3  Hermann  restricts  wages  to 
a  payment  by  one  person  to  another  for  common  services  ren- 
dered. He  distinguishes  services  as  common,  talented,  fixed 
and  official.  For  the  reward  of  common  labor  he  would  use 
wages  (Lohn).  For  the  reward  of  labor  requiring  talent  and 
education,  honorar.  The  payments  made  by  university  stu- 
dents to  professors  for  their  lectures  are  at  the  present  time 
called  by  that  name.  For  fixed  employment  he  uses  salary 
(Gehalt),  and  for  official  services  fee  (Gage).4  V.  Thiinen 
would  also  restrict  wages  to  payment  for  hired  labor,  but  he  is 
most  anxious  to  distinguish  between  the  reward  for  labor  as 
such,  and  that  which  is  due  to  the  tools  the  laborer  may  em- 
ploy, including  the  simplest  implements.  The  reward  for  the 
use  of  tools  is  interest,  that  for  labor  proper  is  wages.5 

Many  writers  do  not  consider  it  important  to  state  what  they 
mean  by  wages,  leaving  the  reader  to  infer  from  the  general 
treatment  the  sense  in  which  the  word  is  used.  We  are, 

1  Grundsatze  der  Volks-wirshschaftslehre,  4lh  ed.,  1841,  p.  201. 

2  Ibid.,  p.  252. 

8  Grundsatze  der  Oekonomisch-politischen  oder  Kameralwissensckaften,   1820, 
2d  Ed.,  §  186. 

*  Staats-wirthschaftliche  Untcrsuchungen,  2d  ed.,  1870,  p.  460. 
8  Der  Isolirte  Staat,  Part  ii,  p.  78. 


309]  INTRODUCTION  !j 

therefore,  warned  against  apparent  differences  due  to  differ- 
ences of  terminology  merely. 

The  plan  to  be  pursued  in  this  essay  has  occasioned  some 
thought,  and  the  arrangement  finally  adopted  is  not  without 
objection.  But  since  the  chief  object  in  making  the  study  is  to 
discover,  if  possible,  progress  of  thought  on  this  subject,  chro- 
nology had  to  be  sacrificed,  in  some  instances,  to  a  logical 
order.  Hence  while  von  Thiinen  appears  after  Hermann  in 
obedience  to  the  time  order  of  their  work,  yet  von  Thiinen 
appears  after  Brentano  and  Philippovich,  because  he  is  not  so 
clearly  a  follower  of  Hermann  as  they  are.  It  has  often  been 
remarked  by  students  of  the  theoretical  Economics  of  the 
Germans  that  there  exists  but  a  slender  thread  of  logical  con- 
nection between  the  great  German  writers  of  the  last  one  hun- 
dred years.  Indeed  it  has  been  said  that  the  attitude  toward 
the  wages-fund  theory  is  the  only  point  common  to  most  of 
them.  But  a  study  of  the  treatment  by  the  Germans  of  the 
wages-fund,  will  not  include  the  work  of  von  Thiinen,  as  is 
shown  by  Professor  Taussig's  admirable  "  Wages  and  Capital." 
Wishing  to  exhibit,  if  possible,  the  treatment  of  the  entire 
wages  question  by  the  Germans,  passing  over  rather  lightly 
the  part  in  each  author  which  treats  of  the  wages-fund,  because 
Professor  Taussig  has  made  that  familiar  to  English  readers, 
and  trying  at  the  same  time  to  give  unity  to  my  work,  I  have, 
so  far  as  possible,  grouped  writers  who  appear  to  show  the 
largest  number  of  points  of  contact,  and  at  the  same  time  in- 
cluded writers  of  eminence  who,  though  not  connected  closely 
with  German  predecessors  or  successors,  have  made  important 
contributions  to  the  subject.  Hence  all  the  German  writers 
treated  here  are  placed  in  two  groups.  One  contains  Schmalz, 
Fulda,  Sartorius,  Lueder,  Kraus,  Rau,  Hermann,  Brentano, 
Roscher,  Mithoff,  Mangoldt  and  Philippovich.  Hermann  is 
the  centre  of  this  group,  and  the  others  are  important  only  as 
they  lead  up  to  him,  depend  upon  him,  deviate  from  him,  or 
throw  light  upon  him.  Apart  from  those  who  come  first,  the 


I4  GERMAN  WAGE  THEORIES  [310 

common  element  in  nearly  all  is  the  method  of  treatment. 
Other  points  of  contact  will  appear  as  we  proceed,  but  this  is 
the  most  conspicuous.  In  this  group  there  is  a  real  unity  of 
method  and  interest.  The  other  group  contains  von  Thiinen, 
Karl  Marx  and  Schulze-Gaevernitz.  These  authors  do  not 
belong  together  in  the  sense  that  the  others  do.  They  have 
so  little  in  common  that  it  is  not  even  necessary  to  speak  of 
them  as  a  group  except  for  convenience.  They  are  included 
in  this  discussion  because  of  their  importance.  Von  Thiinen 
was  a  genius,  about  whom  it  is  desirable  that  American  students 
should  know  more.  A  fair-minded  and  exhaustive  study  of 
Marx's  theory  of  distribution,  the  full  materials  for  which  have 
but  recently  come  into  our  hands,  has  yet  to  be  made  in  Eng- 
lish. Any  earnest  study  of  his  theory  of  wages  is  welcome  if 
it  adds  anything  to  our  real  understanding  of  Marx.  Schulze- 
Gaevernitz  is  noticed  here  because  he  is  the  chief  representa- 
tive in  Germany  of  those  writers  who  regard  wages  as  a 
residual  share,  and  because  the  theory  which  he  represents  is 
exciting  the  interest  of  German  students. 

One  who  goes  to  Germany  to  hear  lectures  on  the  principles 
of  Economics,  or  who  undertakes  a  study  of  the  literature  of 
the  same,  must  not  expect  to  find  a  body  of  doctrines  devel- 
oped independently  on  German  soil,  and  uninfluenced  by  the 
work  of  other  nations.  The  German  professor  has  ever  on  his 
lips  the  names  of  Adam  Smith,  Ricardo  and  John  Stuart  Mill. 
Each  economist  is  followed,  criticized  or  expounded  according 
to  the  knowledge  and  idiosyncrasies  of  the  instructor.  The 
present  German  thinking  has  its  roots  in  the  work  of  the 
English  school;  and,  if  the  German  work  is  to  be  understood, 
the  English  work  must  be  mastered  first.  The  same  thing  is 
true  of  the  literature.  The  foundations  have  been  laid  across 
the  Channel.  Hence  in  exposition,  the  theories  of  Adam 
Smith  and  Ricardo  are  often  employed  in  this  study  as 
standards,  and  in  this 'way  the  English  and  German  ideas  are 
brought  into  comparison. 


CHAPTER  I 

PREDECESSORS   OF    HERMANN,    1/76-1832 

WHILE  this  period  is  the  least  important  of  all  in  positive 
results,  yet  a  consideration  of  the  work  of  a  few  men  who 
wrote  during  this  time  will  repay  the  student  who  desires  to 
know  the  beginnings  of  things,  and  who  loves  to  trace  the  de- 
velopment of  method  and  theoretic  spirit.  When  Adam 
Smith  published  the  "  Wealth  of  Nations,"  the  physiocratic 
doctrines  of  distribution  were  dominant.  The  struggle  be- 
tween the  views  entertained  by  the  Physiocrats  and  those 
introduced  by  Adam  Smith  was  not  so  bitter  as  such  struggles 
are  apt  to  be.  There  appears  to  have  been  in  Germany  com- 
paratively little  objection  to  Adam  Smith's  statement.  On 
the  contrary,  adherents  sprang  up  wherever  the  new  doc- 
trines became  known.  Within  a  few  years  German  students 
were  listening  to  lectures  delivered  by  University  Professors 
who  declared  themselves  followers  of  Adam  Smith.  How- 
ever, there  were  some  who,  for  various  reasons,  could  not 
or  would  not  change  views  already  formed  and  expressed,  and 
who,  though  partaking  of  the  early  advantages  of  this  century, 
took  little  notice  of  the  new  movement.  Among  these  is 
Schmalz,1  whom  Roscher  calls  the  last  of  the  Physiocrats. 

1Theodor  Anton  Heinrich  Schmalz  was  born  1760,  died  1831.  He  studied 
Theology  and  Philosophy  at  the  University  of  Gottingen,  1777-1780.  He  became 
a  Professor  of  Law  at  Rinteln  in  1788,  but  the  following  year  was  called  to 
Konigsberg,  becoming  Director  of  the  University  in  1801.  In  1803  he  was  trans- 
ferred to  Halle  as  a  judicial  counselor  and  Professor,  where  he  remained  till  1808. 
When  the  new  University  at  Berlin  was  established  he  became  its  first  Director  in 
1810,  and  as  Professor  of  Law  continued  in  the  service  of  the  Prussian  king. 

As  a  writer  his  life  was  full  of  activity,  his  efforts  centering  principally  upon 
3"]  IS 


j5  GERMAN  WAGE  THEORIES  [3x3 

According  to  Schmalz,  society  is  composed  of  classes 
or  groups,  differing  in  standard  of  life.  Yet  there  is  an  average 
standard  to  which  all  groups  are  tending.  The  poor  are 
spurred  by  ambition  to  approach  the  average,  while  shame 
restrains  the  rich  from  maintaining  a  standard  far  above  the 
average.  Notwithstanding  the  spur  of  ambition,  wages  are 
governed  by  a  law.  That  which  one  is  accustomed  to  con- 
sume in  his  class  during  the  time  that  the  work  is  being  done 
determines  the  wages  he  will  receive.  Two  reasons  are 
assigned  for  this  rate:  I.  The  laborer  demands  it  for  a  life  of 
respectability  among  his  class.  2.  It  is  the  laborer's  right. 
The  question  of  right  enters,  because  wages  are  obtained  from 
men  and  not  from  nature.  When  a  man  sacrifices  his  time  to 
work  for  me,  it  is  right  that  I  give  him  as  much  for  it  as  he 
consumes  in  that  time.  He  has  also  a  right  to  receive  as  much 
for  his  labor  as  the  companions  of  his  class  consume  during 
the  time  in  which  the  labor  is  being  performed.  There  is  no 
reason  why  he  should  consume  more  at  my  cost.  If  I  give 
him  less,  I  do  him  an  injustice.  If  I  give  him  more,  I  make 
him  a  present.  Wages  correspond  to  the  amount  here  indi- 
cated, and  that  which  men  habitually  pay  by  contract  must 
have  back  of  it  the  force  of  natural  right. 

It  is  not  necessary  to  point  out  how  far  short  of  scientific 
precision  this  reasoning  of  Schmalz  falls.  Adam  Smith's  reas- 
oning may  leave  something  to  be  desired,  but  it  is  better  than 
that  of  Schmalz.  This  consuming  rate  of  Schmalz  is  not  the 
same  as  the  "lowest  rate  consistent  with  common  humanity" 

Politics,  Law  and  Economics.  In  Politics  he  favored  absolutism.  In  Law  he 
represented  the  standpoint  of  natural  right.  In  Economics  the  Physiocratics' 
views  seemed  to  him  the  soundest.  He  compared  the  doctrines  of  Colbert  and 
his  followers  to  the  Ptolemaic  system  of  Astronomy,  and  those  of  the  Physiocrats  to 
the  Copernican  system,  and  regarded  Adam  Smith  as  a  fad  (see  Roscher, 
Geschichte,  p.  498-9).  For  his  treatment  of  systematic  Economics  see  Handbuch 
der  Staatswirtschaft,  Berlin,  1808,  and  Staatswirtschaftslehre  in  Brief  en, 
Berlin,  1818.  For  his  characterization  by  Roscher,  see  the  latter's  Geschichte 
der  National-Oekonomik  in  Deutschland,  p.  498. 


3 1 3]  PREDECESSORS  OF  HERMANN  !  7 

of  Adam  Smith ;  the  latter  was  a  consumption  rate  sufficient 
for  both  the  workman  and  his  family  during  the  entire  year; 
the  former  was  a  rate  for  the  workman  during  the  time  of 
work.  Adam  Smith  had  in  mind  a  corrective  in  a  decrease  of 
the  supply  of  labor,  if  the  rate  fell  below  the  standard. 
Schmalz  was  appealing  to  conceptions  of  natural  right. 

Fulda1  is  important  only  as  a  transition  from  the  old  to  the 
new  point  of  view.  While  holding  with  Adam  Smith  that  the 
state  of  wages  is  at  once  a  sign  and  an  effect  of  the  different 
states  of  society,  he  attempts  to  show  that  wages  may  be  af- 
fected by  different  applications  of  capital.  To  his  mind  ma- 
chinery is  inimical  to  the  interests  of  labor.  Wages  are  more 
favorably  influenced  if  capital  is  applied  to  agriculture  rather 
than  to  trade,  since  in  manufacture  labor  is  displaced  by  the 
preponderance  of  capital  in  the  form  of  machinery.  From  this 
point  of  view  the  national  interests  of  labor  may  be  promoted  by 
change  of  national  industry  and  without  any  increase  of  capital. 

Sartorius,2  Lueder  and  Kraus  were  prominently  instru- 
mental in  introducing  the  teachings  of  Adam  Smith  into  Ger- 
many. In  the  extent  to  which  they  appeal  to  his  views  for  an 
explanation  of  wages,  they  differ  widely.  Sartorius  seems  to 
have  paid  attention  to  the  last  page  only  of  Adam  Smith's 
chapter  on  wages,  when  he  points  out  that  the  price  of  labor 
is  regulated  by  (:)  the  demand  for  labor,  and  (2)  the  price  of 
the  necessaries  and  conveniences  of  life,  and  then  follows  this 
with  a  discussion  of  the  influence  of  scarcity  and  plenty  upon 

^riedrich  Carl  von  Fulda,  born  1774,  died  1847,  student  at  Gottingen  1794- 
97,  and  received  in  1798  a  call  to  Ti  bingen  as  Professor  of  Kameralwissenschaft, 
a  position  which  he  occupied  nearly  forty  years.  His  views  on  Economics  are 
found  in  his  Grundsdtse  der  ceconomisch-politischen  oder  Kameralwis  sense  ha f ten, 
T.bingen,  1816,  2d  ed.,  1820. 

*  George  Friedrich  Sartorius  was  born  1766  and  died  1828.  After  studying 
at  Gottingen  he  was,  in  1802,  appointed  by  that  University  Professor  of  Philoso- 
phy, and  remained  in  that  position,  although  called  to  both  Berlin  and  Leipsig  as 
Professor  of  Kameralwissenschaft. 


jg  GERMAN  WAGE  THEORIES 

these  two  factors.  Lueder  x  likewise  uses  only  a  part  of  Adam 
Smith,  holding  that  wages  will  be  above  the  minimum  only 
when  the  funds  from  which  wages  are  drawn  increase. 
Kraus,*  however,  constituted  himself  the  special  interpreter 
of  Adam  Smith  to  the  Germans;  accordingly,  his  book  read  in 
connection  with  the  table  of  contents  is  found  to  be  not  a  word 
for  word  repetition  of  the  "  Wealth  of  Nations,"  but  a  good 
analysis  of  it.  Thus  his  treatment  of  wages  is  made  to  include 
all  the  main  points  of  Adam  Smith. 

Up  to  this  point  the  German  economists  stated  a  necessary 
minimum  wage ;  a  new  idea  was  originated  by  Lotz,3  who  first 
stated  the  conditions  of  maximum  wages.  This  is  the  begin- 
ning of  a  new  and  more  fertile  treatment  of  the  subject.  Lotz 
pointed  out  that  competition  could  operate  only  within  certain 
limits,  the  lowest  limit  being  subsistence  wages  and  the  upper 
limit  that  point  at  which  wages  swallow  up  the  profits  of  capi- 
tal. All  economists  since  Lotz  have  observed  some  such 
limits.  Rau  was  the  first  to  elaborate  the  point. 

Rau  4  published  the  first  edition  of  his  Political  Economy  in 
1826.  The  doctrine  of  wages  formulated  in  the  first  edition 
received  scarcely  any  modification  in  the  successive  nine  re- 
visions, of  which  the  last  appeared  in  1870.  Rau  was  the  first 
great  German  economist  to  recast  the  science  on  the  principles 
laid  down  by  Adam  Smith.  He  may,  therefore,  be  considered 

1  August  Ferdinand  Lueder,  born  1760,  died  1819.  He  was  Professor  of  History 
in  Braunschweig,  1797,  and  in  1810  Professor  of  Philosophy  in  Gottingen,  where 
he  remained  till  two  years  before  his  death.  He  published  in  1800-1804,  Na- 
tionalindu3trie  und  Staatswirthschaft. 

J  Christian  Jakob  Kraus,  born  1753,  died  1807.  ^e  studied  at  Konigsberg  and 
G5ttingen,  and  in  1780  became  Professor  of  Practical  Philosophy  in  Konigsberg, 
a  place  which  he  kept  till  his  death. 

3  Johann  Friedrich  Eusebius  Lotz,  born  1771,  died  1838.     He  studied  in  Jena. 
He  held  many  government  appointments  and  was  for  a  time  Professor  of  Law  and 
Economics  at  Bonn.     He  published,  in  1821,  Hanubuch  der  Staats-wirthschafts- 
lehre. 

4  Karl  Heinrich  Rau,  born  1792,  died  1870. 


2!  5]  PREDECESSORS   OF  HERMANN  Io, 

the  founder  in  Germany  of  that  individualistic  school  which 
Adam  Smith  founded  in  England.  While  previous  writers, 
who  may  be  called  followers,  were  for  the  most  part  mere 
copyists,  Rau  makes  departures  in  statement  and  analysis. 
He  also  attempts  to  adapt  the  matter  to  the  conditions  of  his 
own  country.  Rau  was  the  first  to  enunciate  the  doctrine  that 
wages  are  only  a  special  form  of  price.  In  this  he  is  truly  a 
predecessor  of  Hermann.  To  understand  Rau's  discussion, 
we  must  recur  to  his  doctrine  of  price.  Price  results  from  the 
combined  action  of  three  forces:  (i)  the  value  of  the  exchang- 
ing good,  (2)  the  cost  of  the  exchanging  good,  (3)  competition. 
Price  cannot  go  higher  than  the  value  of  the  good  to  the 
buyer;  it  cannot  go  below  the  cost  to  the  producer;  it  is  de- 
termined somewhere  between  these  limits  by  the  relation  of 
supply  and  demand.  Turning  now  to  his  discussion  of  wages, 
the  value  of  labor  is  regulated  by  the  purposes  for  which  it  is 
applied.  In  most  cases  it  is  applied  to  secure  a  profit. 
When  so  employed,  the  undertaker  is  in  a  position  to  give 
high  or  low  wages  according  to  the  amount  of  net  product  left 
over  after  other  expenses  are  paid.  It  might  go  so  high  as  to 
swallow  up  the  pure  profit  of  the  undertaker,  and  even  so  high 
as  to  decrease  interest  and  rent,  but  it  cannot  destroy  them, 
because  in  that  case  undertaking  must  cease.  But  from  the 
fact  that  even  pure  profit  usually  exists,  it  is  evident  that  we 
need  other  determining  principles. 

We  take  a  further  step  in  advance  by  applying  the  principle 
of  costs  to  labor,  which,  in  skilled  occupations,  includes  sub- 
sistence and  previous  outlay  for  training;  while  in  simple 
occupations,  subsistence,  broadly  interpreted  to  include  family 
support  during  the  intervals  of  idleness,  is  the  principal 
consideration.  Costs  are  determined  by  (i)  the  usual  manner 
of  life  of  the  laborer  and  his  family  in  given  conditions 
of  climate,  customs,  and  the  degree  of  culture  of  the 
people  as  a  whole,  as  well  as  that  of  the  peculiar  class  to 
which  the  laborer  may  happen  to  belong;  (2)  the  price  of  the 


2O  GERMAN  WAGE  THEORIES  [316 

commodities  which  enter  into  the  laborer's  consumption  list. 
In  this  way  is  determined  the  cost  of  production  of  labor. 
"Wages  cannot  remain  permanently  below  this  cost,  for  in  that 
.case  the  supply  of  labor  would  fail.  Here  we  have  the  limit  to 
the  fall  of  wages.  The  limit  to  the  rise  of  wages  has  already 
been  given.  Between  the  limits  there  is  a  wide  margin.  The 
force  that  determines  whether  wages  shall  tend  to  the  maxi- 
mum or  to  the  minimum,  or  remain  intermediate,  is  competi- 
tion: the  competition  of  labor  for  capital  and  the  competition 
of  capital  for  labor.  The  supply  of  labor  consists  in  the  num- 
ber of  men  who  are  resolved  to  work  for  wages  and  are  seek- 
ing work.  The  demand  for  labor  consists  in  the  amount 
of  capital  which  is  destined  to  be  applied  to  the  employment 
of  laborers  in  profitable  undertaking.  If  the  population  is  very 
large  in  comparison  with  the  amount  of  capital,  then  wages 
may  sink  to  the  minimum  or  below  it  before  correction 
fComes.  In  the  opposite  case,  it  may  rise  till  reduced  profits 
.correct  the  tendency. 

In  these  views  Rau  differed  but  slightly  from  the  English 
school  as  known  in  his  time.  Adam  Smith  and  Ricardo  both 
•conceived  a  hypothetical  price  which  they  called  natural, 
above  and  below  which  actual  market  price  might  fluctuate. 
Rau  designated  an  upper  and  lower  limit  between  which  actual 
price  might  fluctuate.  Rau's  lower  limit  is  really  iden- 
tical with  Ricardo's  central  point.  The  fluctuations  in  both 
cases  are  caused  by  the  same  influence,  /.  e.,  relation  of  supply 
and  demand.  In  designating  the  upper  limit,  as  the  value  of 
the  good  to  the  buyer,  the  first  step  was  taken  toward  regard- 
ing the  influence  of  the  consumer  on  price,  which  in  the  hands 
of  Hermann  developed  into  a  theory  designed  to  refute  the 
wages- fund  doctrine.  There  is  one  other  respect  in  which  Rau 
and  the  English  school  differ :  as  to  the  part  of  the  theory 
upon  which  special  emphasis  shall  be  laid.  After  Ricardo 
makes  the  distinction  between  natural  and  market  wages,  he 
says  almost  nothing  further  about  market  wages.  He  seems 


317]  PREDECESSORS  OF  HERMANN  21 

to  have  developed  his  system  of  distribution  from  the  point  of 
view  of  his  conception  of  natural  wages.  If  so,  he  would  nat- 
urally lay  greater  emphasis  upon  it,  as  his  readers  would  thereby 
the  better  understand  him.  In  the  passages  in  which  he  re- 
pudiates supply  and  demand  as  determinants  of  prices,  he  is 
to  be  understood  not  as  denying  their  influence  on  market 
price,  but  as  denying  their  power  to  determine  natural  price,  in 
which  he  is  chiefly  interested.  It  was  not  so  with  Rau 
Ricardo's  determinant  of  natural  wages  became  for  him  one 
of  the  limits  of  fluctuation  and  the  determinants  of  the  fluctua- 
tions assumed  the  central  place.  We  might  therefore  expect 
from  Rau  a  more  careful  study  and  statement  of  the  principles 
of  supply  and  demand  in  their  application  to  the  problem  of 
wages.  To  say  that  wages  depend  upon  the  relation  of  supply 
and  demand  is  to  say  almost  nothing  at  all.  We  want  some- 
thing more  than  a  definition  of  the  terms  employed  in  one 
short  sentence.  Such  expressions  as  that,  when  capital  is 
large  in  comparison  with  population  wages  rise,  and  when 
population  is  large  in  comparison  with  capital  wages  fall,  are 
too  indefinite,  and  bring  in  direct  comparison  things  which 
strictly  are  incapable  of  comparison. 

The  foregoing  discussion  shows  that  Rau  is  far  superior  to- 
his  German  predecessors.  But,  in  justice  to  them,  it  must  not 
be  forgotten  that  he  wrote  under  the  influence  not  only  of 
Adam  Smith,  but  of  Malthus,  McCulloch,  Torrens,  Ricardor 
and  James  Mill.  This  is  proved  by  the  fact  that  in  the  first 
edition  of  his  work  on  political  economy,  he  makes  frequent 
reference  to  these  authors  whose  works  had  been  translated 
into  German  or  French.  It  is  also  proved  by  the  fact  that 
many  of  his  general  propositions  are  found  in  the  English 
works.  For  instance,  his  remarks  on  the  proportions  between 
capital  and  labor  as  determining  wages  are  found  in  substan- 
tially the  same  form  in  James  Mill. 

Any  lack  of  economic  analysis  tending  to  mar  the  work  of 
the  early  German  economists  is  fully  atoned  for  by  the  publi- 


22  GERMAN  WAGE  THEORIES 

cation  in  1832  of  Hermann's  "Economic  Investigations." 
This  work  marks  a  great  advance  on  previous  theoretical 
economic  studies,  and  even  to-day  exercises  considerable  in- 
fluence on  economic  thought 


CHAPTER  II 

HERMANN  ' 

HISTORICALLY  considered,  the  "Economic  Investigations" 
of  Hermann  possesses  a  unique  interest.  Unlike  Adam 
Smith,  whose  "  Wealth  of  Nations  "  appeared  at  the  end  of  a 
long  career,  Hermann  began  his  extended  activity  in  economic 
literature  with  the  publication  of  the  work  by  which  he  is 
chiefly  known,  and  which  won  from  Roscher  the  judgment 
that  it  placed  its  author  "  among  the  most  eminent  economists 
of  the  nineteenth  century." 

To  the  reviewer  of  the  progress  of  economic  theory  in  Ger- 
many, the  work  marks  an  important  advance.  Finance  and 
Administration  were  ably  and  independently  treated  previous 
to  1832.  But  of  the  many  names  which  appear  among  con- 
tributors on  pure  Economics  during  the  half  century  following 
the  publication  of  the  "  Wealth  of  Nations,"  Rau  is  really  the 
only  one  of  note,  and  in  power  of  analysis  and  independent 
thought  he  is  much  inferior  to  Hermann.  That  the  work  of 
the  former  was  always  more  familiar  to  ordinary  students  must 
be  admitted ;  but  that  is  due  to  the  fact  that  Hermann's  style 
is  more  difficult,  while  Rau's  book  has  decided  pedagogical 
advantages. 

It  is  to  Hermann's  credit  that,  living  in  a  country  which  was 
then  far  behind  England  in  commercial  and  industrial  develop- 
ment, and  hence  behind  her  in  the  development  of  capitalistic 
production,  and  the  advanced  relations  of  laborer  and  em- 
ployer, he  should  have  been  the  first  to  assail,  with  some 

1  Freidrich  Benedikt  Wilhelm  v.  Hermann,  born  1795,  died  1868. 
3»9]  23 


24  GERMAN  WAGE  THEORIES  [320 

measure  of  success,  the  wages- fund  theory  of  the  English 
economists,  and  substitute  for  it  a  theory  which  appears  in 
nearly  every  systematic  treatise  on  political  economy  in  Ger- 
many since  his  day. 

I. 

In  the  early  German  wage  literature  there  appears  little  to 
which  Hermann  is  indebted.  The  numerous  writers  previous 
to  Rau  are  either  avowedly  expositors  of  Adam  Smith  or 
mere  copyists.  He,  however,  owes  something  to  Rau.  Rau 
was  the  first  German  economist  to  treat  wages  as  only  a  special 
form  of  price  and  to  apply  the  general  principles  already 
evolved  under  his  treatment  of  price  to  a  solution  of  the  prob- 
lem of  wages. 

It  is  from  this  point  of  view  that  Hermann  opens  his  dis- 
cussion of  wages.  According  to  both  men,  the  general  prin- 
ciple is  supply  and  demand,  but  to  Hermann  this,  so  stated, 
means  but  little.  We  need  to  trace  back  the  causal  connection 
one  step  further.  Taking  the  demand  side  first,  there  are 
three  factors  which  determine  price.1  First,  the  individual 
value  of  the  good  to  the  buyer.  Secondly,  the  buyer's  ability 
to  pay  for  the  good.  Thirdly,  the  disposition  to  buy  as 
cheaply  as  possible;  the  buyer  will  therefore  pay  no  more  than 
the  price  reduced  by  the  competition  of  the  sellers.  Turning 
now  to  the  supply  side  of  the  problem.  There  are  here,  too, 
three  factors.  First,  the  seller  must  receive  as  much  as  the 
good  has  cost.  Secondly,  the  disposition  to  get  as  much  as 
possible;  the  seller  will  therefore  get  as  much  above  cost  as 
the  buyers  raise  the  price.  Thirdly,  much  depends  upon  the 
exchange  value  of  the  means  of  exchange.  If  in  the  above 
principles  we  will  substitute  for  seller,  buyer  and  good,  the 
words  laborer,  employer  and  labor,  we  shall  have  in  outline 
the  principles  according  to  which  wages  are  determined.' 

1  Staatswirthschaftliche  Untersuchungen,  1870,  p.  390-459. 
1  Staatswirthschaftliche  Untersuchungen,  p.  460-487. 


32  1] 


HERMANN 


Unfortunately,  Hermann  never  finished  the  discussion,  hav- 
ing treated  the  subject  from  the  standpoint  of  demand  only. 
How  he  would  have  considered  the  problem  of  population 
under  the  cost  of  production  of  laborers  we  have  no  means  of 
knowing.  Although  the  treatment  as  we  have  it  is  defective, 
yet  we  may  adopt  a  point  of  view  according  to  which  the  ap- 
parently one-sided  treatment  may  yield  results.  If  we  note 
that  population  does  not  readily  respond  to  fluctuations  in  de- 
mand for  laborers,  we  may  assume  the  supply  side  of  the 
problem  as  a  fixed  quantity.  Then  a  correct  statement  of  the 
principles  of  demand  may  yield  the  determinant  of  wages  for 
short  periods;  i.  e.,  assuming  Hermann's  method  to  be  a 
correct  one. 

Hermann's  views  may  be  conveniently  considered  under 
five  heads. 

I.  The  first  important  question  is,  to  whom,  or  to  what  class 
is  labor  valuable?   who  are  the  real  buyers  of  labor?     To 
these  questions  Adam  Smith,  Ricardo  and  James  Mill  had 
given   the    unequivocal   answer,  the  employer  of  labor  —  the 
capitalist.     But  Hermann  answered  that  the  real  consumer  of 
labor  power,  and  hence  the  class  to  which  it  has  value,  is  the 
class  which  consumes  the  laborers'  products.     The  nature  of 
the  case  is  not  changed  by  the  fact  that  the  producer  hires 
and  rewards  the  labor  directly,  while  the  consumer  is  uncon- 
scious of  the  labor  involved  in  the  product.     The  consumer 
is  nevertheless  a  buyer  of  labor.     The  undertaker  is  considered 
by   Hermann  a  mere   labor   purveyor,  a  sort  of  consumers' 
agent,  who  for  his  outlay  in  wages  seeks  a  recompense  in  the 
price  of  the  goods  made  by  labor. 

This  doctrine,  not  elaborated,  but  rather  treated  as  self- 
evident,  is  the  foundation-stone  of  Hermann's  theoretic  struc- 
ture, and  upon  its  truth  or  falsity  will  depend  the  soundness  or 
weakness  of  his  alleged  contribution  to  this  subject. 

II.  While  Menger  properly  has  the  credit  of  working  out  in 
detail,  and  tracing  to  some  important  result  the  conception  of 


26  GERMAN  WAGE   THEORIES 

stages  in  the  productive  process,  the  idea  is  clearly  suggested 
by  Hermann.  Only  a  small  fraction  of  the  number  of  laborers 
engaged  in  productive  activities  are  employed  in  putting  on  the 
finishing  touches  to  commodities.  Many  are  getting  out  the 
raw  materials,  and  between  miners  and  agriculturalists  at  one 
end  of  the  line,  and  labourers  ministering  directly  to  con- 
sumers' needs  at  the  other,  there  are  whole  groups  of  laborers 
pushing  along  the  commodities  from  a  lower  to  a  higher  stage 
in  the  transformations  from  crude  products  of  nature  to  the 
manifold  refined  forms  suited  to  serve  man's  wants. 

Hermann  makes  use  of  the  theory  to  establish  a  point  which 
seems  not  to  have  attracted  the  attention  of  subsequent  writers. 
Most  theorists  since  Adam  Smith  have  felt  the  necessity  of 
distinguishing  between  particular  and  general  wages.  They 
considered  that  when  they  had  determined  a  general  law  of 
wages  they  had  not  accounted  for  differences  of  wages  in  dif- 
ferent employments.  Hence  we  have  repeated  so  often  both 
in  English  and  German  treatises  Adam  Smith's  familiar 
points :  wages  in  particular  employments  are  determined  by 
differences  in  agreeableness  of  employment,  expense  of  learn- 
ing, trust  reposed,  etc.  Hermann  offers  a  different  view  when 
he  proclaims  a  difference  in  wages  according  as  the  employ- 
ment is  remote  from,  or  adjacent  to,  the  final  stage.  Bakers 
and  butchers  always  receive  higher  wages  than  weavers,  and 
those  are  in  the  most  unfavorable  position  who  are  laboring  in 
the  initial  stages  of  production,  as  in  mining  and  agriculture. 
The  explanation  of  these  alleged  facts  is  that  the  final  prod- 
ucts are  subject  to  constant  daily  demand,  and  the  dealer  in 
such  commodities  can  and  must  offer  his  laborers  higher 
wages  than  he  who  produces  what  can  remain  for  a  consider- 
able time  in  one  stage.  The  dealer  in  the  intermediate  prod- 
ucts must  make  good  his  wage  outlay  in  the  price  of  the 
product,  and  in  order  to  insure  this  he  keeps  wages  at  as  mod- 
erate a  figure  as  possible.  All  who  purchase  from  him  buy  as 
cheaply  as  possible.  This  means  that  a  constant  pressure  is 


2  2  3]  HERMANN  2J 

brought  to  bear  on  all  those  in  the  previous  labor  steps  to 
limit  the  wage  outlay.  "  Upon  all  the  production  stages  there 
rules  the  economic  motive  to  furnish  to  the  final  purchaser  as 
cheaply  as  possible  the  labor  contained  in  the  product."  The 
producer  of  the  final  product  is  not  so  pushed,  since  his  com- 
modity is  subject  to  pressing  daily  demand. 

In  connection  with  this  there  is  a  subordinate  point  which 
is  worth  mentioning.  What  are  the  general  principles  accord- 
ing to  which  a  change  of  price  of  goods  in  the  final  stage  will 
affect  wages  in  the  earlier  stages?  Hermann  answers  that 
this  depends  upon  the  time  during  which  the  product  delays 
at  a  given  stage.  The  shorter  the  time,  the  more  sensitively 
will  the  rate  of  wages  respond  to  changes  in  the  stages  above. 
It  will  also  depend  upon  the  readiness  with  which  undertakers 
and  laborers  can  betake  themselves  to  other  employments. 
Something  depends  also  upon  whether  the  raw  material  or 
the  partly-manufactured  product  is  limited  to  a  definite  use, 
or  is  capable  of  several  applications. 

III.  Mere  demand  or  desire  is  powerless  to  affect  wages 
unless  there  exists  also  the  ability  to  pay.  To  know  this,  one 
must  know  the  source  of  payment.  Adam  Smith  and  his 
immediate  followers  considered  income  and  capital  as  the  true 
sources  of  all  payments  for  wages.  Ricardo  laid  emphasis 
upon  capital  alone.  Against  Ricardo's  view  Hermann  took  a 
decided  stand.  A  mere  statement  of  his  argument  reveals 
strong  feeling.  Whoever  would  get  the  labor  he  needs  or 
wants  must  have  the  means  to  pay.  In  the  case  of  household 
servants  it  is  plain  that  they  are  paid  from  income.  With  the 
fluctuation  of  incomes,  fluctuates  the  effective  demand  for 
servants.  It  is  evident  that  to  pay  them  out  of  the  stock  of 
accumulated  wealth  would  be  wastefulness. 

There  is  no  labor  which  does  not  pertain  to  a  last  consumer. 
This  is  as  true  of  labor,  for  labor  contractors  or  undertakers, 
as  of  labor  in  direct  personal  service.  However  numerous  the 
technical  steps  in  the  production  may  be,  the  finished  product 


28  GERMAN  WAGE  THEORIES  [324 

at  last  becomes  an  object  of  use,  either  temporary  or  lasting. 
All  the  intervening  steps  from  the  beginning  to  the  end  have 
been  taken  for  the  sake  of  this  ultimate  use.  And  the  final 
recompense  for  all  previous  outlays  must  find  its  source  in  the 
payments  for  the  use  of  these  final  objects.  "  Not  merely  all 
the  labor  applied  to  every  labor  step  in  producing  the  imme- 
diate product,  but  also  the  labor  contained  in  the  replacing 
and  use  of  all  kinds  of  fixed  capital,  is  at  last  to  be  made  good 
by  the  payments  which  the  ultimate  consumer  of  the  product 
makes."1  The  wage  outlay  of  the  last,  as  well  as  of  all 
previous  steps  of  manufacture,  is  contained  in  the  price  of  the 
final  product.  Capital  cannot  be  the  source  of  wage  payment, 
for  if  restitution  out  of  the  product  fails,  production  and  hence 
wage-payment  must  cease.  If  production  were  continued 
without  reference  to  the  final  demand,  the  depreciation  in  value 
of  the  raw  products  would  be  a  severe  experimental  demon- 
stration to  the  producer  that  his  capital  was  not  the  source  of 
wage  payment.  Hence  we  get  the  following  result.  The  true 
and  continuous  source  of  the  compensation  of  production  is 
the  income  of  the  buyer  of  products  for  his  own  use.  Capital 
is  only  the  help-means  to  production,  not  the  source  of  reward.. 
"  It  is  unthinkable  that  wages  depend  upon  the  greatness  of 
the  disposable  capital  in  relation  to  the  number  of  laborers."* 
It  depends  in  the  long  run  always  upon  the  price  which  the 
active  buyers  can  and  are  willing  to  pay  for  the  product.  "  To 
hold  that  the  source  of  wages  is  capital  is  not  merely  a  theoret- 
ical error,  but  also  in  practical  affairs  is  a  doctrine  of  the  most 
serious  importance ;  because  it  fortifies  the  laborer  in  the  super- 
ficial view  that  the  undertaker  is  his  wage-giver,  and  that  upon 
him  depends  the  scale  of  his  wages.  If  the  laborer  holds  to 
such  an  appearance  of  the  truth  and  becomes  hostile  to  the 
undertaker,  participating  in  acts  of  violence  against  him,  there 
is  no  cause  for  surprise.  That  the  doctrine  of  science  should 

1  Staats.  Unters.,  p.  473.  *  Ibid.,  p.  477. 


325]  HERMANN  29 

strengthen  the  selfish  procedure  of  ignorant  laborers  in  strikes, 
by  its  doctrine  that  the  source  of  wages  is  the  capital  of  the 
'  entrepreneur,'  shows  the  need  for  caution." T 

IV.  The  two  considerations,  need  of  labor  service  and  abil- 
ity to  pay,  are  operative  from  the  side  of  the  "  entrepreneur."    But 
these  are  conditions  which  relate  to  but  one  of  the  contractors. 
It  is  obvious  that  in  general  under  the  regime  of  free  competi- 
tion, whoever  employs  labor  will  not  grant  higher  pay  than 
the  lowest  at  which  he  can  obtain  the  appropriate  service  in 
sufficient  quantity.     How  low  wages  may  go  is  influenced 
somewhat   by   the   competition   of  laborers.      Unfortunately 
Hermann  did  not  profess  to  have  treated  the  wage  question 
from  the  side  of  supply  in  any  thorough  manner.     We  do  not 
find  that  he  took  account  of  numbers  and  the  forces  which 
determine  them.     He  confined  himself  to  a  few  remarks  on 
forces  which  prevent  the  ready  access  of  labor  to  the  market. 
Long     before    Cairnes3    wrote    on    non- competing     groups, 
Hermann   had   said   that   efficient   competition  in  the   labor 
market  exists  only  between  groups  with  approximately  like 
technical  skill.     A  man's  power  to  compete  is  limited  to  the 
employments  with  which  he  has  some  familiarity.     For  an 
entire  group,  the  duration  of  this  limitation  is  the  time  which 
the  young  generation  requires  to  fit  itself  for  a  new  occupation, 
*'.  e.,  an  occupation  differing  from  the  one  usual  to  the  group. 

But  the  hindrances  are  not  confined  to  those  between 
groups  ;  even  within  the  group  there  are  barriers  in  the  cost  of 
travel;  delays  in  changing  settlement;  reluctance  to  receive 
strangers ;  difference  in  speech  and  custom ;  the  lack  of 
sociability,  and  religious  prejudice,  etc.,  etc. 

V.  So  much  for  direct  competition.     But  Hermann  regards 
indirect  competition  as  often  more  real  and  effective  than  direct. 
This  is  the  labor  involved  in  competing  goods.     "  It  shows 

1  Staats.  Unters.,  p.  478. 

1  Some  Leading  Principles  of  Pol.  Econ. ,  p.  66. 


jo  GERMAN  WAGE  THEORIES  [326 

itself  in  the  quantity  of  foreign  products  sold,  which  necessarily 
withdraws  from  our  laborers  just  so  much  opportunity  for 
labor  as  the  foreign  importations  would  have  required  on  our 
part,  had  we  made  the  goods."  This  withdrawal  of  opportun- 
ity to  labor  arises  as  soon  as  the  foreign  product  can  be  sold 
somewhat  cheaper  than  that  produced  with  home  labor."1  If 
the  home  production  is  to  continue,  either  wages  must  be 
lowered,  or  other  changes  in  the  conditions  of  production  must 
be  made.  Hermann  was  well  aware  of  the  importance  of  the 
factors  of  production  other  than  labor.  Equal  labor  with  him 
does  not  always  mean  equal  efficiency.  He  adduces  many  ex- 
amples to  show  that  the  products  of  higher  paid  labor  can 
hold  the  market  against  products  of  cheaper  paid  labor. 
When  Hermann  wrote,  wages  were  higher  in  England  than  in 
Germany,  yet  cotton  and  iron  were  regularly  imported  into 
the  latter  country.  The  result  was  that  the  higher  paid 
English  labor  displaced  the  cheaper  paid  German  labor.  He 
laid  down  the  general  proposition  that  those  laborers  can  com- 
mand the  market  whose  products  can  on  the  whole  be  sold 
cheaper.*  It  was  clear  to  him  that  many  elements  besides 
wages  must  be  taken  into  account  in  commanding  a  market. 
Cost  of  raw  material,  access  to  sources  of  power,  facilities  of 
transportation,  efficient  management  and  efficient  labor  are 
all  of  importance.  When  all  these  elements  are  given  proper 
weight,  it  is  clear  that  it  is  possible  for  a  country  to  command 
a  market,  and  at  the  same  time  to  pay  high  wages.  It  is 
equally  true,  however,  that  by  inattention  to  conditions  of  pro- 
duction other  than  labor  conditions,  or  by  relative  disadvan- 
tage with  reference  to  these  conditions,  a  body  of  laborers  may 
be  entirely  defeated  in  their  endeavors  to  raise  wages  by  limi- 
tation of  their  numbers  through  lower  birth  rate.  If  the 
limited  home  supply  of  labor  diminished  the  home  product, 
there  is  no  guarantee  that  prices  will  rise,  since  foreign  com- 
petition may  prevent  it.3 

1  Staatsw.  Unters,,  p.  483.  *  Ibid.,  p.  483.  *  Ibid.,  p.  483. 


327]  HERMANN  3! 

II 

Hermann's  treatment  of  indirect  competition,  at  first  sight, 
seems  to  lend  support  to  the  chief  contention  of  the  protec- 
tionist in  respect  to  wages.  The  free  trade  doctrine  has  en- 
joyed no  slight  advantage,  in  that  it  could  quote  in  its  support 
the  teachings  of  nearly  all  the  respectable  economists  for  a  cen- 
tury or  more.  It  would  be  no  slight  gain  if  the  authority  of 
Hermann  could  truthfully  be  used  in  support  of  protection. 
While  some  support  might  be  gained  from  him,  it  will  appear 
from  the  statement  given  above  that  he  was  free  from  some  of 
the  commonest  errors  observed  in  the  modern  discussions  of 
the  tariff.  It  would  be  hard  to  find  in  his  discussion  support 
for  the  "  pauper  argument,"  unconnected,  as  it  commonly  is, 
with  rigid  investigations  as  to  conditions  of  production  other 
than  labor  conditions.  It  is  too  often  assumed  that  "  cheap  " 
labor  will  inevitably  displace  more  highly  paid  labor.  Accord- 
ing to  Hermann's  view,  pauper  labor,  far  from  being  a  danger- 
ous competitor  of  better  paid  labor,  might  easily  be  displaced 
by  the  latter.  The  real  importance  of  indirect  competition, 
then,  lay  in  the  fact  that  such  competition  was  made  possible 
by  various  favorable  conditions  of  production.  By  this  means 
capital  might  be  the  laborer's  most  relentless  competitor, 
thus  rendering  useless  his  efforts  to  better  his  condition  by 
limiting  his  numbers. 

The  treatment  of  direct  competition  is  open,  of  course,  to 
the  charge  of  inadequacy,  but  this  is  true  of  all  beginnings.  It 
is  less  to  Hermann's  discredit  that  he  did  not  complete  the 
theory,  than  it  is  to  his  followers,  that  they  ignored  the  theory 
altogether.  The  objections  which  have  been  urged  against 
Cairnes'  idea  of  the  limits  of  competition  in  group  arrangement 
may  be  urged  against  Hermann's  idea.  They  may  both  have 
truly  described  conditions  at  the  time,  but  the  extension  of 
machinery  and  modern  methods  of  production  makes  modifi- 
cation necessary.  Both  writers  appear  to  have  had  in  mind 
principally  a  sort  of  contingent,  not  an  actual,  competition.  It 


22  GERMAN  WAGE  THEORIES  [328 

depended  upon  the  transference  of  the  young  from  the  occu- 
pation of  parents  to  other  kinds  of  work.  The  theory  was  in- 
tended to  answer  the  question,  What  is  the  force  of  a  man's 
competition  if  he  tries  to  change  his  occupation  ?  It  did  not 
determine  actual  competition  should  a  man  remain  in  his  occu- 
pation.1 On  Hermann's  part  the  doctrine  was  negative.  This 
is  due  to  the  fact  that  he  did  not  complete  the  study  as  we 
may  suppose  he  had  planned. 

His  idea  that  wages  are  high  or  low  according  as  the  labor 
is  near  to,  or  remote  from,  the  final  stage  of  production,  is  new 
and  interesting,  but  does  not  seem  to  have  large  support  from 
facts.  By  comparing  wages  paid  in  the  earlier  stages  of  pro- 
duction with  those  in  the  later,  facts  could  be  found  which 
would  seem  to  support  a  directly  opposite  conclusion.  He 
points  out  no  limited  special  talent  as  necessary  to  perform  the 
labor  near  the  final  stage.  He  notices  no  obstacles  to  com- 
petition in  the  final  group  which  do  not  apply  to  other 
groups.  He  provides  for  competition  in  all  the  groups  from 
the  new  populations,  and  it  does  not  appear  clear  why  in  a  few 
generations  migrations  from  other  groups  would  not  reduce 
wages  to  a  general  level  for  like  skill.  If  there  were  reasons 
in  general  economic  conditions  why  the  highest  wages  could 
be  paid  for  work  on  the  final  stage,  and  it  were  actually 
offered,  there  would  be  a  tendency  to  overcrowd  those  occupa- 
tions, a  tendency  which  would  result  in  reducing  wages  to  the 
level  of  pay  in  other  occupations. 

The  most  interesting  point,  and  certainly  the  most  import- 
ant for  later  developments  of  wage  theories  in  Germany,  is 
Hermann's  treatment  of  the  wages-fund  theory.  But  this  point 
is  so  intimately  connected  with  the  teachings  of  Hermann's 
successors  that  a  discussion  of  it  will  be  deferred  till  the  group 
to  which  Hermann  belongs  is  brought  under  review. 

•J.  B.  Clark,  Limits  of  Competition.  See  Clark  and  Giddings,  Modern 
Distributive  Process. 


CHAPTER  III 

HERMANN'S  SUCCESSORS 

THERE  are  a  number  of  economists  who  are  the  followers 
of  Hermann  in  the  sense  that  they  are  influenced  by  his  teach- 
ings, but  Brentano  is  one  in  the  sense  that  he  made  additions 
to  Hermann's  theory.  Although  Brentano  has  made  several 
contributions  to  the  subject  'in  recent  years,  nothing  more 
fundamental  has  appeared  on  his  theory  of  wages  since  he 
published  the  essay  in  Hildebrand's  Jahrbiicher,  in  1871,  on 
4'  Die  Lehre  von  den  Lohnsteigerungen  mit  besonderer  Riick- 
sicht  auf  die  englischen  Wirthschaftslehrer."1  This  is  a  criti- 
cism of  the  English  views  on  wages,  in  the  course  of  which  his 
own  ideas  are  made  apparent.  The  central  point  of  his 
-criticism  is  his  opposition  to  the  fixity  of  the  fund  involved  in 
the  doctrine  of  the  wages- fund,  as  taught  by  the  leading 
economic  writers  up  to  that  time.  He  exonerates  Adam 
Smith  from  the  imputation  of  having  conceived  the  fund  as  a 
fixed  quantity;  for,  although  he  was  the  first  to  use  the  word, 
fund,  and  to  speak  of  it  as  a  source  of  wages,  when  capital  and 
land  are  introduced  as  claimants  of  a  share  in  the  production, 
wages  no  longer  correspond  with  total  production,  and  from 
this  point  on,  are  not  conceived  as  fixed  by  the  amount  of  a 
fund.  Having  placed  Adam  Smith  to  one  side  as  not  open  to 
criticism  on  this  point,  Brentano  proceeds  briefly  to  show  that 
when  other  economists  thought  they  were  basing  their  doc- 
trine on  a  fixed  fund,  they  were  mistaken.  Ricardo's  doctrine 
of  the  relation  between  wages  and  profit  assumes  a  fixed 
amount.  At  the  same  time  his  theory  of  the  standard  of  life 

1  See  Jahtbuchtr  fur  Nationaloekonomie,  \   Folge,  vol.  xvi,  pp.  251-281. 
329]  33 


34  GERMAN  WAGE  THEORIES  [330 

as  determining  wages  makes  fixity  impossible,  depending  as  a 
standard  does  upon  the  laborers'  subjective  measure  of  life- 
needs.  This  charge,  however,  of  a  lack  of  consistency  be- 
tween two  parts  of  a  theory  does  not  seem  to  be  well  founded, 
from  the  fact  that  so  far  as  Ricardo  considered  the  standard 
of  life  as  determining  wages,  it  was  a  minimum  standard  which 
he  had  in  mind,  and  this  he  conceived  as  constant  for  long 
periods.  Brentano  also  denies  Senior's  claim  to  have  estab- 
lished the  fixity  of  the  fund  upon  a  scientific  basis.  According 
to  Senior,  the  wages-fund  depends  upon  the  relation  in  which 
the  entire  product  is  distributed  between  laborers  and  capital- 
ists on  the  margin  of  cultivation.  This  relation  depends  upon 
the  rate  of  profit,  which  in  turn  depends  upon  the  surplus 
above  the  cost  of  labor.  In  short,  the  fund  which  determines 
wages  is  itself  determined  by  wages.  John  Stuart  Mill  is  as 
little  successful  as  the  others  in  establishing  the  fixity  of  the 
fund.  Having  placed  certain  limitations  upon  the  terms  em- 
ployed, Mill  holds  that  wages  depend  upon  the  relation 
of  population  and  capital.  He  further  states  that  they  cannot 
be  affected  by  anything  else.  "  Wages  cannot  rise,  but  by  an 
increase  of  the  aggregate  funds  employed  in  hiring  laborers,  or 
by  a  diminution  in  the  number  of  competitors  for  hire;  nor 
fall,  except  either  by  a  diminution  of  the  funds  devoted  to 
paying  labor,  or  by  an  increase  in  the  number  of  laborers  to 
be  paid." l  He  here  assumes  a  certain  degree  of  fixity,  but 
Brentano  points  out  that  Mill's  idea  of  capital  allows  very  little 
definiteness  to  the  fund,  since  he  made  the  distinction  between 
capital  and  not-capital  to  centre  wholly  in  the  intention  of  the 
owner.  Human  intention  as  to  the  particular  employment  of 
wealth  is  too  changeable  to  allow  fixity  to  be  predicated  of  its 
object.  For  instance,  the  ordinary  exigencies  of  life  may  re- 
quire that  what  to-day  was  intended  to  be  devoted  to  the  em- 
ployment of  labor  may  to-morrow  be  spent  on  a  journey.  An 

1  Principlet  of  Pjlitical  Economy,  Book  ii,  ch.  xi,  §  I. 


33  I  ]  HERMANN'S  SUCCESSORS  35 

increased  demand  for  goods  might  easily  change  the  wages- 
fund  by  a  change  in  the  mind  of  the  capitalist  as  to  the  destin- 
ation of  wealth  in  his  possession. 

Thornton  discussed  at  considerable  length  the  possibility  of 
an  increase  of  wages,  either  at  the  cost  of  consumers  by  com-- 
pelling  them  to  pay  higher  prices  for  commodities,  or  at  ther 
cost  of  employers  through  a  diminution  of  profits.  He  argued^ 
that  it  could  be  at  the  cost  of  consumers  only  if  there  arose  » 
relative  increase  of  demand  for  consumable  goods,  or  a  relative; 
decrease  of  product  by  monopoly.  According  to  Thornton's 
view,  in  whatever  way  consumers  are  forced  to  bear  the  bur- 
den of  the  higher  wage  in  one  branch,  it  will  be  found  that 
their  power  of  demand  for  other  commodities  has  been  propor- 
tionately weakened,  and  thus  laborers  in  other  branches  suffer 
a  corresponding  loss.  It  is  evident  that,  if  we  entertain  Thorn- 
ton's view,  although  we  may  not  hold  to  a  fixed  wages-fund, 
we  really  substitute  for  the  latter  a  fixed  income-fund,  and 
must  admit  the  truth  of  the  opinion  held  by  the  wages-fund 
theorists  that  one  class  of  laborers  can  increase  their  wages 
only  at  the  expense  of  another  class.  Brentano  holds  that 
Thornton  has  here  made  a  mistake,  which  consists  in  not  suf- 
ficiently analyzing  the  changed  economic  conditions  of  laborers 
as  consumers,  brought  about  by  a  rise  in  their  wages.  By  as- 
suming a  fixed  income,  it  is  true  that  by  so  much  as  income 
is  allowed  to  expand  in  one  direction  it  must  contract  in  an- 
other. But  Brentano  continues  to  argue  that  by  the  very  con- 
ditions of  the  supposition,  the  laborers'  income  is  not  fixed,  but 
increased.  Therefor,  in  their  case  no  contraction  is  necessary. 
Furthermore,  the  extra  demand  upon  the  incomes  of  others 
by  increase  of  price  is  exactly  counterbalanced  by  an  increased 
wage  or  purchasing  power  on  the  part  of  laborers.  Hence  an 
increase  of  wages,  by  the  method  supposed,  is  not  a  detriment: 
to  other  laborers,  nor  is  it  inimical  to  national  accumulation,  if 
secured  at  the  expense  of  employers,  for  by  as  much  as  capi- 
talists have  less  inducement,  laborers  have  greater  power  to- 
save. 


^6  GERMAN  WAGE  THEORIES  [333 

So  far  the  work  of  Brentano  seems  to  be  purely  negative, 
tmt  taken  in  connection  with  his  position  in  regard  to  the 
source  of  wages,  both  ultimate  and  proximate,  it  is  enough  to 
show  the  trend  of  his  thinking.  His  ideas  as  to  the  source  of 
wages  is  made  clear  in  the  article  in  the  Jahrbiicher,  and  in  some 
of  his  later  works.1  The  capitalist  secures  control  of  laborers' 
products  by  supporting  laborers  out  of  his  capital.  In  what- 
ever form  it  may  come,  there  is  the  purpose  and  expectation 
•that  the  value  will  all  return  to  the  capitalist  out  of  the  income 
of  the  consumers  of  his  product.  Since  what  consumers  offer 
<is  no  settled  amount,  the  wages-fund  theory  overlooked  the 
'"possibility  of  rolling  off  upon  consumers  the  higher  wages 
-demanded  by  coalitions;  it  overlooks  the  fact  that  an  employer 
will  always  be  ready  to  expend  more  capital  in  the  payment 
of  wages  as  soon  as  the  consumers  replace  for  him  the  sum 
•expended  thereon,  and  that  in  such  a  case  it  will  always  be 
possible  for  him,  if  he  himself  has  no  more  than  a  certain  capi- 
tal, to  procure  capital  by  borrowing  abroad."2 

We  see  how  closely  he  follows  Hermann  in  admitting  the 
entrepreneur's  possessions  as  the  immediate  source  of  wages, 
but  denying  that  they  perform  the  important  function  assigned 
by  the  wages-fund  theorists.  The  capital  of  the  employer  is 
the  source  of  wages  in  the  first  instance,  but  the  employer 
himself  is  only  a  link  in  the  chain,  and  that  a  very  dependent 
one ;  for  consumers  control  the  situation.  If  the  latter  show 
willingness  to  consume  at  remunerative  prices,  capital  can  ex- 
pand to  an  unlimited  amount  by  anticipation  under  our  credit 
system.  This  view  necessitates  the  surrender  of  the  idea  of  a 
fixed  wage-fund.  The  effective  criticism  of  that  postulate  of 
English  political  economy  is  the  important  contribution  of 
Brentano  to  this  subject,  based  as  the  criticism  is  upon  Her- 
mann's positive  contributions.  Hermann's  criticism  consists 
largely  in  an  interpretation  of  economic  organization,  as  related 

1  See  Relation  of  Labor  to  Law,  p.  214.  2See  below,  p.  37. 


333]  HERMANN'S  SUCCESSORS  37- 

to  the  laboring  man,  which  made  necessary  a  different  view  of 
the  nature  of  the  "  fund  "  from  that  of  the  English  school, 
Brentano  was  not  content  with  this,  but  pursued  the  enemy 
into  his  own  camp.  He  showed  that,  as  judged  by  the  very 
writings  of  those  who  championed  the  doctrine  most  strongly, 
it  must  suffer  discredit. 

From  his  criticism  of  Ricardo  and  Mill,  as  of  others,  it  is 
clear  that  Brentano  does  not  believe  in  the  fixity  of  the  wages- 
fund.  But  his  account  of  the  manner  in  which  the  capital  in 
employers'  hands,  which  he  regards  as  the  immediate  source 
of  wages,  can  be  changed  in  amount,  shows  that  there  are 
definite  limits  to  the  fluctuation  of  capital.  One  common 
method  was  shown  by  Brentano  in  his  criticism  of  Mill.  An 
employer  might  change  his  mind.  But  while  this  might  affect 
to  some  extent  the  fixity  of  the  funds  of  an  individual  capitalist, 
it  becomes  of  less  importance  when  applied  to  capitalists  as  a 
class,  for  an  average  change  of  intentions  by  a  large  number 
of  employers  might  result  in  something  approaching  a  con- 
stant. The  same  remark  holds  for  the  other  cause — the  use 
of  credit.  If  an  individual  capitalist  is  in  mind,  there  may  be 
some  truth  in  the  possibility  of  increasing  wage-paying  power 
by  credit,  but  when  applied  to  all  capitalists  the  use  of  credit 
for  such  purposes  has  definite  limits. 

In  general,  we  may  say  that  Brentano's  criticism  of  the 
English  economists  makes  clear  his  view  that  the  source  of 
wages  is  elastic,  and  that  his  treatment  of  Thornton's  opinions 
shows  that  Brentano  regarded  as  possible  an  advance  of  wages 
to  workers  in  one  branch  of  industry,  without  necessity  of  loss 
to  workers  in  other  branches.  Yet  the  whole  treatment  fails 
clearly  to  distinguish  between  the  operations  of  individual 
capitalists  and  the  operations  of  capitalists  as  a  body. 

Roscher's  contribution  is  rather  insignificant.  As  usual 
with  the  Germans,  he  opens  the  discussion  by  assigning  to 
supply  and  demand  the  highest  importance.  Each  element  is 
considered  by  itself  in  the  discussion.  The  supply  of  labor  is 


38  GERMAN  WAGE   THEORIES  [334 

determined  by  the  prevailing  standard  of  life.  And  since  the 
standard  is  determined  by  laborers,  therefore  the  supply  of 
labor  is  determined  by  laborers.  Thus  one  important  factor 
of  those  which  determine  wages  is  under  the  control  of  wage- 
receivers.  Roscher  seems  to  have  understood  the  real  signifi- 
cance of  this  fact  without  assigning  too  much  importance  to  it. 
It  is  not  true,  of  course,  that  present  laborers  have  control  of 
present  supply.  To  say  that  laborers  have  control  of  labor- 
supply  can  only  mean  that  present  laborers  can  control  future 
supply.  How  important  this  may  be  as  a  basis  for  shifting 
upon  laborers  the  responsibility  for  their  own  condition,  de- 
pends upon  how  thoroughly  we  hold  to  the  solidarity  of  labor 
as  a  sort  of  corporate  responsibility  by  which  the  present  gen- 
eration is  held  responsible  for  the  doings  of  the  past  genera- 
tion. Responsibility  is  of  two  kinds,  natural  and  moral. 
Natural  responsibility  for  past  errors,  either  of  themselves  or 
of  their  ancestors,  laborers  cannot  escape.  The  sins  of  the 
fathers  are  visited  upon  the  children.  But  the  moral  respon- 
sibility for  the  errors  of  a  former  time  cannot  be  ascribed  to 
the  present.  But  the  case  may  be  different  in  respect  to  the 
accountability  of  the  present  for  the  future.  It  is  certain  that, 
physically  speaking,  the  supply  of  the  laboring  population 
twenty  years  hence  will  depend  upon  the  action  of  population 
for  the  next  ten  years.  But  there  is  nothing  in  the  nature  of 
things  that  could  indicate  what  laboring  population  is  neces- 
sary twenty  years  hence.  So  that  present  increase  is  based 
upon  present  conditions,  and  the  future  must  take  care  of 
itself;  just  as  past  conditions  determined  past  increase,  and  the 
present  must  deal  as  best  it  can  with  numbers  such  as  they 
are.  Although  Roscher  does  not  enter  at  all  upon  this  line  of 
reasoning,  he  sees  enough  to  admit  that  labor's  control  over 
its  own  supply  has  this  limitation  :  that  the  laboring  class  as  a 
body  can  benefit  by  it  only  after  long  periods  of  time,  and  that 
for  the  moment  the  control  is  of  slight  advantage,  because  the 
whole  present  supply  must  be  carried  to  market  for  support. 


335]  HERMANN'S  SUCCESSORS  30 

Demand,  according  to  Roscher,  depends  upon  the  value  in 
use  of  labor  and  purchasers'  capacity  to  pay.  While  the 
standard  of  life  fixes  minimum  wages,  value  in  use  determines 
maximum  wages.  Under  value  in  use  he  merely  approves  v. 
Thiinen's  point  that  additional  product  in  any  branch  of  in- 
dustry, due  to  the  labor  of  the  last  workman  employed,  has  a 
controlling  influence  on  the  rate  of  wages.  He  connects 
capacity  to  pay  in  a  vague  way  with  national  income.  In  this 
it  is  easy  to  trace  the  influence  of  Hermann.  But  the  points, 
when  not  fragmentary,  are  confused.  Hermann  is  also  fol- 
lowed in  the  opinion  that  the  capital  of  the  employer  is  not  the 
source  of  wages,  but  acts  as  a  sort  of  reservoir  for  the  payment 
of  wages.  Demand  for  labor  does  not  depend  upon  the  size  of 
the  national  capital.  This  view  is  supported  by  calling  attention 
to  the  effect  of  the  different  uses  of  capital  upon  the  demand  for 
labor.  "  Every  transformation  of  circulating  into  fixed  capital 
diminishes  the  demand  for  other  labor."  "  Only  that  part  of 
circulating  capital  can  affect  wages  which  is  intended,  directly 
or  indirectly,  for  the  purchase  of  labor."1  He  likewise  follows 
Hermann  in  the  view  that  the  highest  wages  are  paid  to  those 
who  are  employed  on  the  last  stages  of  the  productive  processes. 

This  is  enough  to  show  how  little  of  originality  is  to  be  found 
in  this  part  of  Roscher's  work.  At  the  same  time  it  is  enough 
to  indicate  his  proper  historical  place  on  the  question  of  wages. 
The  method  is  that  of  Rau  and  Hermann,  while  the  ideas  are 
mostly  those  of  the  latter.  While  the  treatment  is  much 
weaker  than  that  of  the  one  from  whom  he  chiefly  draws  his 
material,  the  inclusion  of  von  Thiinen's  undeveloped  doctrine 
of  the  influence  of  marginal  laborers  on  wages,  having  no 
organic  connection  with  other  parts  of  Roscher's  work, 
implies,  in  addition,  a  careless  attitude  of  mind  on  the  whole 
question. 

Mithoff2  seems  to  have  adopted  Roscher's  treatment  as  an 

1  Roscher,  Pol.  Econ.,  v.  2,  p.  55. 

1  See  Schonberg's  Handbuch  der  Politischen  Oekonomie. 


40  GERMAN  WAGE  THEORIES  [336 

outline  for  his  own  discussion.  The  standard  of  life,  the  ele- 
ments of  which  he  states  in  detail,  here  also  determines  mini- 
mum wages  and  is  treated  under  supply,  while  the  usefulness 
of  labor  arid  money  demand  (Zahlungsfahigkeit)  determine 
maximum  wages.  The  larger  part  of  his  treatment  comes 
under  ability  to  pay,  and  is  hence  an  attempt  to  give  a  more 
precise  determination  to  the  wages-fund.  It  must  be  confessed 
that  the  exposition  is  somewhat  hackneyed.  The  capital  of 
the  employer  and  that  of  others  over  which  he  has  control  by 
means  of  credit  is  a  reservoir  for  the  payment  of  wages.  What 
flows  out  of  the  reservoir  in  the  form  of  wages  is  restored  by 
consumers  of  the  goods  produced  by  labor's  help.  Hence 
consumers  are  the  buyers  of  labor,  and  their  income,  or  that 
portion  which  is  paid  to  labor,  is  the  true  source  of  wages. 
This  is,  however,  not  a  fixed  amount  in  the  sense  that  it  re- 
mains fixed  during  a  productive  period  as  it  was  at  the  begin- 
ning. At  any  moment  it  is  a  fixed,  but  not  a  foreordained 
amount.  If  at  any  moment  we  divide  this  amount  by  the 
number  of  laborers,  the  quotient  is  the  average  wage.  How- 
ever, MithofT shows  his  practical  turn  of  mind  and  his  agree- 
ment with  Brentano  by  asking  what  purpose  such  a  procedure 
would  answer.  The  amount  of  capital,  however,  applied  to 
the  purchase  of  labor  is  unknown.  If  it  is  a  certain  sum  to-day, 
by  a  change  of  rate  it  is  a  different  sum  to-morrow.  A  change 
of  rate  is  possible  by  a  transference  of  part  of  the  profits  to 
wages,  or  by  drawing  more  heavily  upon  consumers.  "  If 
neither  of  these  assumptions  can  be  made,  then  the  under- 
takers will  not  apply  a  greater  amount  of  capital  to  the  pur- 
chase of  labor.  In  this  case,  certainly,  the  average  rate  of 
wages  remains  dependent  upon  the  capital  which  the  under- 
takers determine  shall  be  applied  to  the  purchase  of  labor." 
However,  the  amount  is  not  made  unchangeable  during  the 
production  period.  How  much  of  the  national  income  is  ap- 
plied to  payment  of  wages  depends  upon  two  factors  :  the  first  is 
direction  of  consumption;  the  second  is  the  character  of  produc- 


337]  HERMANN'S  SUCCESSORS  4! 

tive  industries.  "  If  consumption  seeks  preponderatingly  for 
such  goods  as  require  for  their  production  much  human  labor, 
a  greater  part  of  the  national  income  is  required  for  the  pur- 
chase of  labor  than  would  be  required  if  such  goods  were  con- 
sumed which  required  less  labor  and  more  capital  and  a 
larger  draught  upon  nature's  powers."  If  we  suppose  an  in- 
crease of  total  capital  the  evolution  of  technical  branches  of 
production  will  promote  a  more  universal  application  of  capital 
and  a  diminished  use  of  human  labor. 

We  perceive  that  Mithoff  's  views  are  for  the  most  part  such 
as  we  find  in  the  works  of  his  predecessors.  We  have  supply 
and  demand  as  the  great  law,  supply  as  connected  with  cost  of 
labor,  demand  for  labor  as  connected  with  its  utility,  and 
lastly  consumers'  income  as  the  true  source  of  wages,  which  is 
but  a  repetition  of  Hermann's  view.  How  much  consumers 
contribute  to  wages  depends,  he  says,  upon  the  direction  of 
consumption  and  the  character  of  productive  industries.  If 
consumption  takes  the  direction  of  demanding  goods  chiefly 
made  by  labor,  wages  tend  upward ;  or,  if  the  state  of  the  arts 
is  such  that  what  is  demanded  is  made  largely  by  machinery, 
human  labor  is  displaced  and  wages  tend  downward.  The 
comments  of  Professor  Taussig1  on  this  point  are  so  admirable 
that  I  shall  be  pardoned  for  quoting  him.  After  pointing  out 
that  this  reasoning  as  to  the  direction  of  consumption  is 
derived  apparently  from  Roscher,  who  states  that  the  demand 
for  unskilled  labor  is  much  affected  by  the  direction  which  con- 
sumption takes,  being  greater  if  the  luxury  of  the  rich  takes  the 
form  of  hiring  many  dependents,  and  less  if  expenditure 
takes  modern  form,  he  continues:  *  *  *  "  The  whole  consid- 
eration of  the  direction  of  consumption  as  affecting  wages,  the 
discussion  of  demand  for  hand-made  goods  or  machine-made 
goods  *  *  all  goes  back  to  consumers'  demand  or  income  as 
the  source  of  wages.  It  can  really  bear,  therefore,  only  on  the 

1  Quarterly  Journal  of  Economics,  v.  9,  p.  19. 


42  GERMAN  WAGE  THEORIES  [338 

demand  for  one  sort  of  labor  as  compared  with  another.  *  *  * 
The  form  which  it  takes  with  Mithoff,  and  apparently  with 
Roscher,  overlooks  the  simple  fact  that  machines  are  made 
by  labor,  and  that  a  demand  for  machine-made  goods  affects, 
not  the  total  demand  for  labor,  but  the  direction  of  demand 
(say)  towards  laborers  who  make  and  tend  shoe  machinery 
rather  than  towards  old-fashioned  cobblers." 

There  is  a  good  deal  in  Mangoldt  to  remind  one  of  Senior, 
both  in  spirit  and  in  treatment  of  the  subject.  Senior,  how- 
ever, did  not  employ  such  terminology  as  to  obscure  rather 
than  illuminate  his  text,  nor  did  he  cumber  the  treatment  with 
such  barren  analysis.  Mangoldt's  teachings  agree  for  the 
most  part  with  contemporary  English  political  economy. 
This  is  seen  most  clearly,  perhaps,  in  his  treatment  of  the 
wages-fund.  The  supply  of  the  means  of  support  of  labor  is 
said  to  constitute  the  demand  for  labor.  This  supply  makes 
up  the  greater  part  of  circulating  capital.  For  theoretical 
purposes,  says  Mangoldt,  we  may  treat  circulating  capital  and 
means  of  support  of  labor  as  identical,  and  say  that  wages  are 
determined  by  the  relation  of  circulating  capital  to  labor 
supply.  But  this  comes  dangerously  near  saying  that  wages 
are  determined  by  the  relation  of  labor  supply  to  wages.  This 
declaration  so  lacks  in  scientific  precision  that  it  may  not  be 
improper  for  Professor  Taussig  to  say  that  Mangoldt  "  gives 
the  subject  a  wide  berth."  His  fragmentary  treatment  may 
be  exemplified  by  the  fact  that,  like  Roscher,  he  merely  ap- 
proves one  of  von  Thunen's  most  important  points,  but  makes 
no  use  of  it  in  further  discussion.  He  says  the  demand  for 
labor  proceeds  from  employers,  and  can  continue  only  so  long 
as  the  service  of  labor  surpasses  in  value  that  which  the  em- 
ployer pays  in  the  form  of  wages.  Since  employers  apply 
labor  to  the  most  productive  parts  of  their  business,  and 
only  have  recourse  to  less  productive  parts  as  more  labor 
is  employed,  it  is  possible  to  say  that  the  wages  which 
secures  equilibrium  between  supply  and  demand  is  of  like  im- 


HERMANN'S  SUCCESSORS 


43 


portance  with  the  anticipated  pure  return  of  the  labor  last 
applied.1 

The  treatment  of  our  subject  by  Philippovich"  is  of  interest 
because  he  endeavors  to  give  a  systematic  account  of  Political 
Economy  as  it  now  stands.  He  does  not  represent  any 
economic  school,  but  tries  to  retain  the  best  from  all  writers, 
and  thus  exhibit  a  progressive  science.  His  method  is  thor- 
oughly German,  following  as  he  does  Rau  and  Hermann  in 
treating  wages  as  only  a  part  subject,  under  price  of  commodi- 
ties. If  faithfully  followed,  this  method  insures  the  inclusion 
in  the  discussion  of  all  the  important  commercial  influences 
upon  wages.  To  avoid  error,  however,  it  is  necessary  to  notice 
in  what  respects  labor  differs  from  commodities.  Philippovich 
escapes  this  error  only  in  part.  He  merely  mentions  the 
laborer's  relations  to  the  thing  which  the  laborer  sells.  Since 
the  laborer  cannot  separate  himself  from  his  labor-power,  and 
the  fulfilling  of  the  labor  contract  involves  the  use  of  the  man, 
the  wage-  question  involves  more  or  less  the  physical,  moral, 
spiritual  and  social  welfare  of  wage-earners.  These  non- 
material  elements  of  the  problem  affect  the  practical  working 
out  of  the  forces  of  supply  and  demand.  In  critical  periods 
of  the  relation  of  employers  and  employed,  the  local  bonds  of 
workmen  preventing  movement,  as  well  as  lack  of  accumulated 
means  of  support,  operate  against  them.  The  ease  with  which 
employers  organize,  and  their  command  of  the  supplies  of  life, 
give  them  the  advantage  in  the  struggle,  and  as  a  conse- 
quence laborers  are  apt  to  suffer  in  their  rate  of  wages. 

These  are  obvious  considerations,  and  were  well  expressed 
long  ago  by  Adam  Smith.  The  peculiar  bearing  which  they 
ought  to  have  upon  the  method  employed  by  nearly  all  the 
economists  of  the  group  now  under  consideration,  will  be 
noticed  when  we  have  finished  the  exposition  of  Philippovich's 

1  Grundriss  der  Volkivirthschaftslehre,  p.  158. 
1  Grundriss  der  Politischen  Oekonomie. 


44  GERMAN  WAGE  THEORIES  [340 

views.  Philippovich  follows  Hermann  in  the  manner  in  which 
he  examines  the  forces  of  supply  and  demand.  On  the  side  of 
demand  we  have  (i)  the  number  of  undertakers;  (2)  the 
amount  of  service  desired  by  them  ;  (3)  their  valuation  of  the 
service ;  (4)  their  ability  to  pay.  On  the  side  of  supply  we 
have  (5)  the  number  of  those  desiring  work ;  (6)  amount  of 
service  demanded  of  workers ;  (7)  laborers'  own  valuation  of 
labor  power ;  (8)  value  of  money  paid  for  labor. 

I.  The  influence  of  the   number   of  employers,  says    our 
author,  lies  in  competition.     The  more  employers  there  are, 
the   more   will  wages  have  a  tendency  to    rise.     From  this 
point   of   view    it   would   seem    that   laborers'    interests   are 
inimical   to   the   concentration  of  industry.     If  this  be  true, 
laborers  have  a  discouraging  prospect  ahead.     But  our  author 
does  not  hint  that  laborers  have  any  control  in  the  matter. 
Whether  a  country  shall  have  a  large   or   small  number  of 
employers  depends    upon    many  conditions,  he  says,  among 
which  are  the  degree  of  culture,  distribution  of  wealth,  the  or- 
ganization of  credit,  and  the  manifoldness  of  the  directions  of 
production.     None  of  these  is  under  the  control  of  laborers. 

II.  The  amount  of  labor  which  is  sought  for  in  the  general 
labor  market  is  determined  by  the  amount  of  land  and  capital 
which    the   owners    employ,   in    productive    industry.      The 
strength  of  this  labor  demand  is  much  affected  by  the  distribu- 
tion of  wealth  and  the  productivity  of  wealth.     Individuals 
who  own  large  amounts  of  wealth  apply  a  larger  proportion  to 
direct  satisfactions  than  those  who  have  small   possessions, 
since  the  latter  are  more  strongly  moved  to  the  increase  of 
income.     Concentration  of  wealth,  then,  in  the  hands  of  single 
individuals  is  a  hindrance  to  the  demand  for  labor.     If  wealth 
has  become  less  productive,  there  may  be  increased  activity  in 
productive  enterprises,  since  decrease  of  income  leads  many 
individuals  and  families  to  increased  effort  to  bring  incomes  up 
to  a  former  standard.     Since  the  opposite  is  likewise  true  in 
the  case  of  other  individuals  and  families,  the  demand  for  labor 
is  affected  by  fluctuations  of  income  from  investment. 


34 1  ]  HERMANN'S  SUCCESSORS  45 

III.  Labor  is  valued  by  undertakers,  not  in  itself,  but  in  its 
products.     The  price  of  products,  however,  gives  us  slight 
indications  of  what  wages  are  or  can  be,  since  price  must  cover 
all  costs  of  production,  of  which  wages  may  be  but  a  small 
part.     The  highest  amount  which  can  be  paid  will  be  much 
affected  by  the  price  of  products  in  connection  with  the  extent 
of  the  market,  the  technical  skill  of  workmen,  and  the  relation 
of  efficiency   to   wages.      Philippovich    lays   emphasis   upon 
laborers'    responsibility.      Under   normal    circumstances,   the 
most  important  element  operating  in  the  laborers'  favor  is  the 
personal  element.     It  is  only  by  greater  skill,  greater  industry, 
and  greater  care  that  their  condition  is  elevated. 

IV.  Under  "Ability  to  pay,"  little  is  said  by  this  author. 
While  accepting  Hermann's  view  that  undertakers  stand  be- 
tween laborers  and  consumers  of  laborers'  products,  and  that 
their  ability  to  pay  is  affected  by  what  consumers  pay,  he  yet 
points  out  that  undertakers  may  replenish  their  fund  of  dispos- 
able wage  capital  by  means  of  credit.     But  how  this  fact  may 
affect  wages  is  not  made  clear.     This  is  a  point  which  has 
been  mentioned  by  both  Brentano  and  Philippovich,  but  has 
been  left  undeveloped  by  both. 

V.  To  understand  adequately  how  laborers  compete  with 
each  other  we  must  perceive  that  industry  is  carried  on  in 
branches  and  laborers  are  divided  into  groups,  separated  more 
or  less  completely  by  differences  in  skill,  special  aptitude  and 
training.     However,  there  are  in  all  branches  of  industry  oc- 
cupations which  require  only  ordinary  skill  or  intelligence  and 
hence  can  be  filled  by  the  common  laborers  of  all  branches. 
Here  exists  almost  complete  competition  and  the  lowest  wages 
prevail.     As  we  ascend  in  the  scale  of  skilled  and  special  em- 
ployments  up  to  the  liberal  professions,  we  find  more  and 
more  important  the  group  formations.     Even  in  groups  there 
are  forces  at  work  which  tend  to  break  down  the  barriers  to 
competition.  One  such  force  is  the  existence  in  modern  times  of 
•extended  enforced  idleness.     Such  idleness,  not  accidental  but 


46  GERMAN  WAGE  THEORIES  [342 

largely  the  result  of  the  unsteadiness  of  industrial  evolution,  im- 
pels men  to  seek  new  employments,  thus  breaking  down  former 
group  arrangements.  There  is  always  a  readjustment  of  employ- 
ment after  an  extended  period  of  enforced  idleness.  Under  cer- 
tain exceptional  conditions  there  are  natural  limitations  to  com- 
petition. When  unoccupied  land  is  plentiful  competition  will 
cease  at  the  point  where  wages  sink  to  the  level  of  what  labor 
can  make  on  such  land.  But  this  is  not  the  law  under  ordi- 
nary circumstances.  The  openings  to  labor  without  capital 
are  small  in  number.  As  a  rule  labor  power  without  capital 
has  no  value  to  its  owner. 

VI.  By  the  amount  of  labor  offering  service  our  author  does 
not   mean   the    number  of  persons   seeking  work.     That   is 
measured  by  the  labor  power  and  skill  of  laborers  and  the 
number  of  hours  during  which  daily  its  labor  power  can  be 
active.     The  only  point  made  under  this  head  beyond  the  fore- 
going definition  is  that  relating  to  the  correspondence  between 
time  and  service.     Up  to  a  certain  point  as  the  hours  of  the 
working  day  are  shortened  the  quality  of  the  service  per  hour 
increases.     No  attempt  is  made  to  determine  this  point,  but  it 
is  brought  out  that  if  this  point  of  maximum  service  is  passed 
in  the  direction  of  shorter  hours,  the  effect  is  the  same  as  if  the 
number  of  workers  were  decreased. 

VII.  The  laborer's  valuation  of  his  labor   power  may   be 
affected  by  two  circumstances.     Under  the  exceptional  con- 
ditions of  the  existence  of  large  quantities  of  fertile  unoccupied 
land  accessible  to  laborers,  wages  cannot  sink  below  the  in- 
come obtainable  by  the  laborer  in  independent  undertaking. 
But  under  ordinary  conditions  the  opportunities  for  independ- 
ent undertaking  without  large  capital  are  insignificant,  so  that 
from  this  standpoint  labor  power  has  no  value  to  the  owner. 
A  basis  for  its  valuation  is  found  by  recognizing  the  personality 
of  the  laborer.     This  appears  by  reason  of  the  cost  value  of 
labor  and  the  standard  of  life.     The  cost  of  labor  is  not  so 
simple  as  might  at  first  appear.     Even  a  narrow  view  must 


343]  HERMANN'S  SUCCESSORS  47 

include  in  addition  to  support  during  the  time  of  work,  costs 
of  bringing  up  and  development  of  the  laborer,  support  during 
the  period  of  old  age,  and  a  reserve  as  a  provision  against 
sickness  and  other  causes  of  loss  of  employment.  But  the 
laborer  as  a  human  personality  is  more  than  an  individual. 
He  is  also  the  father  of  a  family;  and  no  fair  judgment  of  the 
value  of  labor  can  ignore  that  fact.  That  it  is  so  often  ignored 
is  accounted  for  by  our  author  by  a  reference  to  the  strong 
competition  of  labor,  and  the  admittance  of  women  to  men's 
employments.  The  question  of  costs  is  much  influenced, 
whether  as  an  individual  or  the  head  of  a  family,  by  the 
standard  of  life,  which  is  defined  as  the  expense  which  one  is 
induced  on  the  average  to  incur  for  the  satisfaction  of  wants, 
in  accordance  with  the  habit  and  custom  of  the  group  to  which 
one  is  attached  by  his  calling  ;  or  shortly,  support  conformable 
to  one's  rank.  This  differs  so  much  according  to  peoples, 
times,  and  places,  that  it  is  impossible  to  reduce  the  standard 
of  life  to  any  law.  In  general  it  may  be  said  that  much 
depends  upon  the  position  accorded  to  the  laboring  class  in 
society  and  political  life.  The  different  amount  of  contact  with 
other  social  strata  and  the  means  of  culture  become  of  prime 
importance.  Of  course,  the  standard  of  life  is  a  powerful 
force  among  all  classes  of  society ;  but  that  of  the  laboring 
class  has  a  special  interest  to  students  of  society,  because  the 
integrity  of  the  standard  has  a  more  or  less  precarious  support 
in  their  case,  and  a  failure  to  maintain  it  may  mean  a  real 
degradation.  It  is  because  laborers  are  affected  in  their  social 
position  and  their  respectability  that  such  fierce  opposition  is 
made  to  wage  reductions.  It  is  only  by  raising  the  standard 
of  life  that  we  can  have  a  permanent  rise  of  wages. 

VIII.  Wages  may  be  said  to  be  affected  by"  money  in  that 
wages  fall  if  money  increases  in  value,  and  vice  versa.  The 
cause  is  a  double  one.  If  money  becomes  dearer,  other  things, 
including  labor,  become  cheaper ;  but  in  the  face  of  a  falling 
market,  production  tends  to  diminish,  and  thus  the  demand  for 


43  GERMAN  WAGE  THEORIES  [344 

labor  is  lessened.  It  will  be  noticed  that  this  argument  for  the 
most  part  applies  to  money  wages  only,  and,  indeed,  the  treat- 
ment thus  far  contemplates  no  determination  of  commodity 
wages. 

The  entire  treatment  by  Philippovich  may  be  summarized  as 
follows  :  Wages  are  determined  by  the  combined  action  of  the 
following  forces:  I.  The  competition  for  labor  is  greater,  the 
larger  the  number  of  employers.  2.  The  demand  for  labor 
depends  partly  upon  the  amount  of  land  and  capital  which 
the  owners  employ  in  productive  industry.  This  employment 
is  favored  by  small  owners.  3.  Labor  is  largely  valued  accord- 
ing to  the  efficiency  and  skill  of  workmen.  4.  The  power  to 
employ  labor  is  affected  by  the  degree  in  which  undertakers 
can  restore  capital  either  from  consumers'  incomes  or  by  the 
use  of  credit.  5.  Laborers  are  limited  in  their  competition 
against  each  other  by  social  and  industrial  group  arrange- 
ments. 6.  The  labor  supply  is  influenced  by  the  length  of  the 
working  day.  7.  Wages,  in  many  instances,  are  largely  de- 
termined by  what  laborers  can  make  in  independent  undertak- 
ings, although  ordinarily  there  are  no  lucrative  independent 
undertakings  open  to  them.  8.  The  standard  of  life  is  an  ever 
active  powerful  force  affecting  the  supply  of  labor. 

These  will  be  recognized  as  important  elements,  but  the 
analysis  would  be  much  more  complete  if  some  attempt  were 
made  to  measure  the  relative  importance  of  the  factors.  Under 
given  circumstances,  some  factors  are  peculiarly  active,  while 
others  are  quiescent.  If  we  are  not  to  be  confused  by  a  mass 
of  meaningless  details,  we  must  know  these  facts. 

There  are  still  two  points  under  dispute  which  Philippovich 
discusses  briefly.  They  pertain  to  the  effects  of  a  supposed 
rise  of  wages. 

I.  May  wages  rise  at  the  cost  of  the  undertakers  ?  To 
answer  this  question  intelligently  we  must  analyze  the  under- 
taker's income.  It  is  in  the  aggregate  composed  of  (i)  wages 
of  superintendence,  (2)  interest,  (3)  profit.  A  rise  of  wages  at 


345]  HERMANN'S  SUCCESSORS  49 

his  cost  would  affect  him,  therefore,  either  as  leader,  capitalist, 
or  speculator.  We  may  assume  that  his  first  two  functions 
cannot  be  affected  by  this  cause  except  through  the  last.  If  a 
rise  should  occur  at  the  cost  of  profits,  the  undertaker  would 
be  in  a  more  unfavorable  position  than  the  ordinary  capitalist, 
for  the  latter  includes  in  the  rate  of  interest  insurance  against 
risk.  Such  a  position  he  would  not  endure  permanently,  and 
the  only  reason  he  might  temporarily  would  be  the  inability 
to  withdraw  his  capital.  Moreover,  no  one  would  embark  in 
industries  in  which  such  conditions  prevailed,  so  that  in  course 
of  time  production  would  decline,  and  with  a  rise  in  price 
profits  would  become  normal. 

There  are  certain  kinds  of  industries  in  which  wages  might 
rise  with  no  unfavorable  effect  upon  profits.  Such  are  certain 
forms  of  monopoly,  or  industries  for  whose  products  there  is 
a  rising  market,  or  those  in  which  the  costs  of  production  de- 
crease more  rapidly  than  wages  increase.  In  such  cases  the 
advantages  could  be  appropriated  by  labor  only  through  com- 
bination. Labor  unions,  as  instruments  to  keep  wages  from 
falling,  are  beneficial  under  certain  circumstances,  both  in 
competitive  and  monopolized  undertakings.  In  the  first,  to 
prevent  undertakers  from  lowering  wages  under  the  stress  of 
competitive  pressure  among  themselves;  in  the  second,  where 
there  is  no  pressure  of  competition,  to  force  those  to  allow 
better  conditions  who  can  but  will  not  voluntarily  do  so. 

II.  It  has  sometimes  been  said  that  if  wages  should  rise  at 
the  cost  of  consumers,  laborers  would  be  sufferers  in  the  end. 
The  argument  is  that  by  so  much  as  prices  rise,  consumers, 
having  fixed  incomes,  must  curtail  their  consumption.  This 
means  a  weakened  purchasing  power  in  certain  directions, 
resulting  in  a  decrease  of  production  and  a  falling  off  in  the 
demand  for  labor  power.  But  this  is  a  point  to  which  Brentano 
paid  special  attention,  and  Philippovich,  without  mentioning 
his  authority,  employs  Brentano's  argument.  It  is  simply  that 
any  loss  of  former  consumers'  purchasing  power  is  fully  made 


,j0  GERMAN  WAGE  THEORIES  [346 

up  by  the  new  additional  purchasing  power  of  laborers  whose 
wages  have  been  increased.  Philippovich,  however,  did  not 
fail  to  notice  that,  if  prices  were  increased  by  a  rise  of  wages, 
laborers  would  lose  a  part  of  their  wage  advance  by  having  to 
pay  higher  prices  for  consumption  goods.  He  at  the  same 
time  pointed  out  that  they  would  not  lose  all  their  advance, 
since  a  part  of  the  burden  of  higher  prices  would  be  borne  by 
capitalists,  land-owners  and  professional  men. 

The  discussion  of  these  two  questions  becomes  clearer  by 
noticing  the  views  of  Thornton,  whom  both  Brentano  and 
Philippovich  are  either  following  or  criticising.  Brentano 
would  naturally  consider  Thornton,  for  his  article  in  Hilde- 
brand's  Jahrbiicher  was  devoted  to  a  study  of  the  doctrine  of 
wage  increase.  Philippovich  took  up  the  discussion  doubtless 
because  he  felt  that  no  systematic  work  on  Political  Economy 
would  be  complete  without  it,  although  he  had  nothing  espe- 
cially new  upon  the  subject. 

Thornton1  desired  to  determine  whether  trades  unions  could 
be  instrumental  in  securing  for  laborers  a  permanent  advance 
in  wages  above  what  would  be  secured  without  union  action. 
He  was  met  at  the  beginning  of  the  discussion  by  the  objection 
that  whatever  the  unions  might  succeed  in  extorting  would 
either  have  been  granted  eventually  without  union  action  or 
could  not  be  lasting,  according  to  circumstances. 

The  first  objection  was  supported  by  the  contention  that  if 
labor  organizations  should  force  a  wage  advance  in  some  par- 
ticular trade,  at  a  time  when  business  was  improving  and  profits 
abnormally  advancing  in  that  same  trade,  it  would  be  but  to  an- 
ticipate what  must  occur  later  by  forces  purely  economic  when 
capital  should  be  attracted  to  that  trade  by  reason  of  the  extra- 
ordinary profits  prevailing.  The  advent  of  new  capital  would 
cause  an  increase  of  demand  for  labor,  and  wages  must  rise  in 
consequence.  Thornton  admitted  the  force  of  this  argument, 

1  On  Labour,  p.  279-321. 


347]  HERMANN'S  SUCCESSORS  5 ! 

but  claimed  that  unless  the  unions  intervened  at  the  beginning 
of  the  process  the  employers  would  pocket  the  whole  advant- 
age during  the  time  preceding  the  advent  of  competition. 
Furthermore,  if  laborers  waited  for  competition  to  raise  their 
wages  they  would  suffer  loss,  for  increased  production  follow- 
ing competition  in  production  would  lower  prices,  and  thus 
the  source  of  higher  wages  would  be  partially  cut  off.  This 
point  Philippovich  also  notes.  So  much  for  the  efficiency  ot 
union  action  in  case  profits  are  above  the  general  level. 

The  second  objection  that  higher  wages,  extorted  at  a  time 
when  profits  were  at  an  equilibrium  or  were  below  the  general 
level,  could  not  be  permanent,  Thornton  denied  for  the  greater 
number  of  cases  to  which  the  rule  was  applicable.  Unionism 
can  raise  wages  permanently  in  the  following  cases:  (i)  Those 
in  which  there  exists  monopoly,  for  prices  can  be  raised 
against  consumers  to  meet  the  increased  cost.  (2)  Those  in 
which,  whether  monopolized  or  not,  the  demand  of  customers 
is  increasing.  Prices  may  be  raised.  (3)  Those  in  which 
economizing  machinery  and  processes  are  being  introduced. 
By  these  means  laborers  are  more  efficient  and  a  greater  num- 
ber of  products  at  old  prices  is  as  beneficial  to  employers  as 
the  same  number  at  higher  prices.  (4)  A  rise  of  wages  is 
also  possible  if  all  trades  were  united  in  a  combination  so  that 
an  equal  and  simultaneous  rise  of  wages  would  produce  a  uni- 
versal fall  of  profits.  In  this  case,  capital  having  no  place  to 
which  to  flee  for  relief,  must  submit.  There  are  other  cases 
mentioned,  but  these  are  the  more  important.  In  all  the  cases 
mentioned  above,  except  the  third,  higher  wages  are  obtained 
only  at  the  expense  of  undertakers  or  consumers.  Indeed, 
Thornton  lays  it  down  as  a  general  proposition  that  wages 
cannot  rise  except  as  prices  rise  or  profits  fall.  Hence  it  be- 
comes important  to  enquire :  in  all  cases  in  which  unionists 
are  the  gainers,  who  are  the  losers?  This  is,  of  course,  a 
difficult  problem,  since  all  are  consumers. 

We  shall  indicate  briefly  Thornton's  answer,  as  it  is  to  his 


j2  GERMAN  WAGE  THEORIES  [348 

answer  that  the  German  economists  take  exception.  He  says 
that  this  will  depend  upon  many  circumstances,  the  important 
ones  being,  whether  the  gain  has  taken  place  in  a  competitive 
or  in  a  monopolized  trade,  or  whether  it  has  taken  place  during  a 
stationary  or  a  progressive  period.  We  will  simply  notice  here 
the  case  of  monopolized  industries.  If  the  rise  occurs  in  such 
an  industry  in  a  prosperous  period,  employers  are  not  injured, 
for  they  can  raise  the  price.  Consumers  are  the  only  positive 
losers ;  for,  although  they  may  be  compelled  to  pay  more  for 
one  class  of  commodities  than  formerly,  they  may  still  be  able 
to  spend  as  much  as  before  on  the  produce  of  other  trades.  In 
that  case  laborers  in  general  would  not  be  deprived  of  anything 
they  were  accustomed  to ;  "  they  would  merely  be  excluded 
from  participating  in  unaccustomed  gains  of  which  otherwise 
they  would  have  had  their  share." 

If  a  rise  in  wages  is  forced  in  monopolized  industries  during 
a  period  of  stagnation,  consumers  are  not  the  only  losers. 
The  main  body  of  laborers,  excluding  those  laborers  the  rise 
of  whose  wages  is  contemplated,  are  injured  by  the  fact  that 
the  unionists  have  intercepted  an  amount  of  money  which 
would  otherwise  have  been  expended  in  the  purchase  of  com- 
modities which  the  main  body  of  laborers  produces.  In  a 
stagnant  period,  incomes  are  regarded  by  Thornton  as  fixed  ; 
therefore,  if  the  producers  of  one  class  of  goods  succeed  in 
absorbing  more  than  the  former  usual  share  of  consumers' 
income,  less  remains  for  expenditure  in  other  departments  of 
trade.  The  curtailment  of  expenditure  in  these  other  direc- 
tions diminishes  demand  for  goods  in  these  trades,  and  thus 
laborers  employed  in  these  trades  are  injured.  Thus  Thornton 
regarded  the  gain  to  a  particular  group  of  laborers  under  the 
circumstances  noted  above  as  offset  by  a  double  detriment ; 
first  to  consumers,  whose  consumption  was  thereby  curtailed, 
and  secondly  to  the  general  body  of  laborers,  the  demand  for 
whose  products  was  thereby  diminished. 

This  is  the  point  to  which  both  Brentano  and  Philippovich 


349]  HERMANN'S  SUCCESSORS  53 

object.  As  already  noticed,  they  call  attention  to  the  increased 
purchasing  power  of  the  group  of  laborers  whose  wages  by 
supposition  have  been  increased.  They  would  admit  that  con- 
sumers of  the  products  whose  price  has  been  raised  are  suf- 
ferers, but  they  deny  that  the  general  body  of  laborers  are 
necessarily  affected.  The  aggregate  demand  for  goods  has 
not  decreased  because  one  class  of  consumers  has  benefited  at 
the  expense  of  another  class.  Laborers  whose  wages  have 
been  increased  are  more  extensive  consumers  than  formerly. 
They  now  possess  an  augmented  purchasing  power  just  equal 
to  the  diminished  purchasing  power  of  consumers  affected  by 
higher  prices.  The  conclusion  then  is  that  when  wages  have 
been  increased  at  the  expense  of  consumers,  the  consumers 
are  the  chief  sufferers,  and  that  the  general  body  of  laborers 
are  not  affected  by  a  diminution  of  demand  for  commodities. 
This  view  would  doubtless  have  been  admitted  by  Thornton 
if  his  attention  had  been  called  to  it,  for  on  its  face  there  does 
not  appear  any  reason  why  the  general  labor  market  need 
suffer  because  purchasing  power  has  been  transferred  from  one 
class  of  laborers  to  another. 

If  Philippovich  corrected  one  of  Thornton's  errors,  he  did  not 
avoid  falling  into  another  one  of  the  same  author.  They  both 
teach  that  in  case  of  monopoly  a  rise  of  wages  may  occur  at 
the  expense  of  consumers.  Both  assume  that  monopolies 
have  such  control  of  the  market  that  they  can  raise  prices  to 
meet  extra  expenses;  thus  there  can  be  shifted  upon  con- 
sumers the  burden  of  a  higher  wage  cost.  But  if  monopolists 
can  increase  prices  to  their  advantage  after  a  rise  of  wages,  the 
question  forces  itself  upon  us  as  to  why  they  could  not  do  it 
before  the  event.  Since  precise  studies  have  been  made  of  the 
relation  between  the  price  of  monopolised  goods  and  monopoly 
profits,  it  seems  clear  that  monopolists  possess  no  power  to 
shift  upon  consumers  the  burden  of  a  higher  wage  rate. 
Monopolists  always  charge  the  highest  price  consumers  are 
willing  to  pay.  The  principle  of  charge  from  the  monopolist 


54  GERMAN  WAGE  THEORIES  [350 

standpoint  is  the  establishment  of  such  a  balance  between 
costs  and  gross  income  as  shall  yield  the  highest  net  return. 
In  general,  the  number  of  consumers  of  a  particular  good 
varies  inversely  as  the  price.  An  increase  of  wages  constitutes 
an  expense  chargeable  to  an  undertaking  as  an  undivided 
whole,  and  is  not  one  which  varies  with  the  amount  of  the 
commodity  produced.  Such  a  charge  must  be  borne  by  the 
monopolist,  for  if  he  attempted  to  escape  it  by  raising  prices, 
consumption  would  be  diminished  so  that  the  monopolist's 
net  income  would  be  decreased. 


CHAPTER   IV 

CRITICISM 

IT  is  proposed  now  to  discuss  briefly  two  points  pertaining 
to  the  work  of  this  entire  group,  the  centre  of  which  is  Her- 
mann. The  first  point  concerns  the  method  of  approaching 
the  wages  question  by  all  the  German  economists  from  Rau  to 
Philippovich.  The  characteristic  method  is  to  state  that 
wages  depend  upon  the  law  of  supply  and  demand.  In  the 
same  manner  that  that  law  determines  the  price  of  commodities, 
so  with  a  few  corrections  it  determines  the  price  of  labor. 
The  reader  of  the  German  work  on  wages  is  referred  to  the 
analysis  of  supply  and  demand  as  applied  to  commodities,  and 
then  finds  the  author  employing  the  same  terminology,  with 
here  and  there  a  word  changed  designed  to  suit  the  special 
case  in  hand. 

The  criticism  of  this  method  as  applied  by  the  group  under 
consideration  is  that  not  sufficient  emphasis  is  laid  upon  the 
very  peculiar  nature  of  labor  as  a  commodity.  This  peculiar 
characteristic  is  illustrated  by  the  application  of  the  law  of 
supply  and  demand  to  different  kinds  of  exchangeable  values, 
and  by  the  analogy  that  may  be  drawn  between  labor  power 
and  certain  kinds  of  goods. 

If  we  undertake  to  rely  upon  the  operation  of  demand  and 
supply  as  a  practical  rule  to  regulate  prices  in  all  industries 
and  for  all  services,  we  shall  find  that  the  rule  does  not  apply 
with  equal  facility.  The  law  of  supply  and  demand  as  a  regu- 
lator of  price  can  be  applied  with  the  least  advantage  with 
regard  to  goods  or  utilities  which  are  produced  by  a  body  of 
capital  that  can  be  easily,  and  with  small  loss  by  the  change, 

55 


tj  6  GERMAN  WAGE  THEORIES  [352 

increased  or  diminished.  Such  would  be  the  case  with  capital 
invested  in  the  stock  exchange  or  in  banking.  Supply  and 
demand  have  somewhat  less  application  in  a  merchant's  busi- 
ness, still  less  in  manufacturing,  and  least  of  all  in  transporta- 
tion, especially  railroad  transportation.1  Banking,  trading, 
manufacturing,  and  railroad  transportation  constitute  a  series 
of  undertakings,  at  one  end  of  which,  banking,  the  principles  of 
supply  and  demand  in  regulating  price  from  the  standpoint  of 
costs,  apply  with  the  most  satisfactory  results;  and  at  the 
other  end  these  principles  have  less  validity.  In  the  bank- 
ing business,  nearly  all  the  capital  is  circulating  capital,  but 
in  the  railroad  business  a  larger  proportion  is  fixed,  and  these 
opposed  conditions  make  a  great  difference  in  the  practical 
working  out  of  prices.  In  the  banking  business,  under  free 
competition,  if  the  price  goes  much  above  the  costs  of  produc- 
tion, the  unusual  profits  attract  capital  into  the  business  till  an 
equilibrium  is  established.  If  prices  fall  below  costs  of  pro- 
duction, further  production  ceases  till  the  equilibrium  is  again 
restored,  and  thus  prices  hover  close  to  costs.  Of  the  whole 
capital  invested,  the  greater  the  proportion  that  is  fixed,  the  more 
difficult  it  is  to  adjust  investment  to  change  of  price.  When  it 
comes  to  a  business  like  the  railroad  business,  the  costs  of  pro- 
duction or  the  cost  of  service  have  but  slight  influence  upon 
charges.  If  competition  forces  prices  below  costs,  there  is  no 
economic  force  to  restore  it,  except  such  as  work  through 
long  periods.  In  a  merchant's  business,  sales  below  cost 
cause  a  greater  loss  the  greater  the  amount  of  sales.  But  in 
the  railroad  traffic,  any  business  that  pays  more  than  immedi- 
ate expenses  is  worth  more  than  no  business.  When  a  mer- 
chant becomes  bankrupt  he  ceases  to  compete.  But  a  bankrupt 
railroad  is  a  more  dangerous  competitor  than  a  sound  road. 
In  a  merchant's  business  the  law  of  supply  and  demand  may 
be  relied  upon  to  adjust  prices  for  the  best  good  of  the  com- 

1  Hadley,  Railroad  Transportation,  p.  40. 


353]  CRITICISM  S7 

munity.     But  in  the  railroad  business  combination  and  agree- 
ment seem  the  only  means  to  avoid  industrial  warfare. 

Now  the  question  occurs,  is  labor  power,  as  a  commodity, 
analogous  to  bank  service  or  merchants'  goods,  or  is  it  more 
analogous  to  factory  products  and  railroad  service?  This  is 
important,  because  upon  the  answer  will  depend  the  extent  to 
which  we  can  wisely  and  without  great  modification  employ 
the  same  analysis  of  supply  and  demand  that  might  be  em- 
ployed in  reference  to  competitive  goods.  The  laborer,  for  the 
purpose  contemplated,  now  occupies  the  same  position  in  rela- 
tion to  his  labor  power  that  the  business  man  or  capitalist  does 
to  the  commodity  or  utility  he  produces.  The  laborer's  capital 
is  himself.  As  the  business  man  maintains  his  capital  only  by 
producing  and  selling  the  utility  his  capital  is  fitted  to  pro- 
duce, so  the  laborer  is  maintained  by  exercising  and  selling 
his  labor  power.  The  kinds  of  business  referred  to  above  as 
a  series  differ  in  two  respects.  First,  in  the  ability  to  cease 
producing  without  serious  detriment  to  the  investment 
Secondly,  in  the  freedom  and  ease  of  transferring  the  value  of 
the  investment.  In  these  two  particulars  banking  is  at  one 
extreme  of  the  series  and  the  railroad  business  at  the  other.  A 
banker  may  cease  discounting  without  serious  injury  to  the 
plant,  and  may  easily  close  up  business  entirely,  transferring 
the  value  of  the  capital  to  another  business.  A  railroad  cannot 
cease  transporting  without  serious  losses  in  fixed  charges  and 
in  deterioration.  It  is  comparatively  useless  as  a  body  of  mere 
property.  Nearly  all  the  value  is  in  the  business,  so  that  it  is 
next  to  impossible  to  decrease  the  supply  of  transportation 
according  to  the  demand  for  it  at  old  prices.  The  supply  is 
kept  up  at  such  prices  as  will  secure  business.  With  reference 
to  these  last  points  labor  is  more  analogous  to  the  railroad 
business  than  to  banking.1  A  laborer  cannot  cease  selling  his 
product  without  serious,  and  it  may  be  permanent,  detriment  to 

,  Railroad  Transportation,  p.  78. 


58  GERMAN  WAGE  THEORIES  [354 

his  investment,  that  is  himself.  And  here  the  laborer's  position 
is  peculiar,  in  that  he  carries  upon  his  shoulders,  so  to  speak,  the 
future  supply  of  labor.  If  his  labor  should  cease,  not  only  is 
his  own  investment  damaged,  but  that  of  others  who  are  de- 
pendent upon  him.  It  is  as  if  a  business  were  being  conducted 
not  alone  for  the  sake  of  the  owner,  but  also  as  a  support  for 
the  business  of  others,  so  that  if  the  one  ceases  the  others  of 
necessity  fall  also. 

Neither  is  the  laborer  free  to  withdraw  his  capital  and  pro- 
duce something  else.  The  laborer  never  has  anything  to  sell 
except  labor  power.  If  capital  does  not  wish  to  buy  what  he 
offers  for  sale,  there  is  no  hope  for  it.  Capital  buys  at  some 
price  or  the  laborer  goes  to  the  poor-house.  These  two  con- 
siderations make  it  as  impossible  for  labor  to  cease  selling  its 
product,  as  for  a  railroad  to  cease  running  its  trains. 

This  analysis  discloses  the  peculiar  nature  of  labor-power 
as  a  commodity.  Its  immobility  is  a  serious  obstacle  to  the 
reduction  of  wages  to  a  common  level.  Its  comparatively 
permanent  supply,  together  with  its  necessary  productive 
activity,  retards  the  correcting  power  of  supply  and  demand. 
We  may  say  that  the  operation  of  the  law  of  supply  and  de- 
mand in  its  application  to  labor  is  greatly  impeded  by  friction. 
And  in  any  practical  treatment  of  the  wages  question  such  as 
is  found  in  the  German  literature,  the  friction-element  ought 
to  dominate  the  discussion  more  than  it  does. 

None  of  the  authors  of  this  group  take  pains  to  point  out 
these  characteristic  differences  between  labor  and  competitive 
commodities  except  Philippovich.  But  the  differences  dis- 
cussed by  him  have  slight  effect  upon  his  subsequent  treat- 
ment. Rau  designated  an  upper  and  lower  limit  of  price,  and 
appealed  to  supply  and  demand  as  forces  operating  to  deter- 
mine wages  at  some  definite  figure  between  those  limits.  But 
the  result  is  vague  and  indefinite.  Hermann  employed  the 
familiar  procedure,  but  omitted  a  discussion  of  that  part  of  the 
question  which,  according  to  his  method,  would  have  given 


355]  CRITICISM  59 

him  an  opportunity  to  point  out  the  comparatively  permanent 
character  of  the  supply  of  labor.  Having,  however,  placed 
wages  in  the  same  category  as  the  prices  of  commodities,  he 
practically  sets  aside  all  factors  as  having  no  force  except  con- 
sumers' income.  Although  his  followers,  for  the  most  part, 
enter  upon  the  discussion  of  wages  by  an  elaboration  of  factors 
identical  with  those  applied  to  determine  the  prices  of  commo- 
dities, they  ultimately  appeal  to  some  one  as  really  final. 
When  this  is  not  done,  as  in  the  case  of  Philippovich,  the 
whole  treatment  is  confused.  All  recent  writers  practically 
adopt  Hermann's  view.  It  is  desirable,  therefore,  to  enter 
upon  some  discussion  of  consumers'  income  as  the  source  and 
determinant  of  general  wages,  and  this  is  the  second  point  in 
the  criticism. 

It  will  be  recalled  that  Adam  Smith  pointed  out  that  there 
was  necessarily  a  minimum  rate,  below  which  it  seemed  im- 
possible that  even  the  lowest  grade  of  labor  could  subsist  for 
any  considerable  period  of  time.  This  lowest  rate  for  any 
family  must  be  more  than  sufficient  to  support  the  man  and 
wife.  When  it  went  below  this,  it  failed  to  be  consistent  with 
the  needs  of  common  humanity,  and  had  the  effect  of  produc- 
ing a  dearth  of  workmen.  However,  the  possibility  of  raising 
wages  above  the  minimum  depended  upon  the  increase  of  the 
"  funds  "  which  are  "  destined  for  the  payment  of  wages."  These 
funds  were  of  two  kinds:  first,  the  revenue  which  is  over  and 
above  what  is  necessary  for  the  maintenance  of  the  employer, 
and  secondly,  capital  which  is  over  and  above  what  is  necessary 
in  order  that  the  employer  may  conduct  his  business  on  any 
given  scale.  In  the  first  part  of  the  section  on  wages,  he 
showed  that  wages  were  the  result  of  a  contract  entered  into 
by  laborers  and  employers.  In  settling  the  terms  of  the  con- 
tract, the  employers  have  the  advantage.  In  the  long  run, 
laborers  may  be  as  necessary  to  employers  as  employers  are  to 
laborers,  but,  practically  speaking,  it  cannot  be  a  question  of 
"  long  run  "  with  workmen.  Employers  could  subsist  for  a 


6o  GERMAN  WAGE  THEORIES  [356 

long  time  on  present  accumulations.  "  Many  workmen  could 
not  subsist  a  week,  few  could  subsist  a  month,  and  scarce  any 
a  year,  without  employment." l  Notwithstanding  the  fact, 
however,  that  employers  have  the  advantage,  wages  for  the 
most  part  are  above  the  minimum,  and  this  fact  is  not  to  be 
regretted;  for  good  wages,  by  increasing  the  efficiency  of  work- 
men, redound  to  the  distinct  advantage  of  society.  Some 
modification  of  this  last  proposition  is  necessary,  since  there 
are  two  kinds  of  laborers  corresponding  to  the  two  kinds  of 
funds  for  the  payment  of  wages:  (i)  Laborers  who  are  paid 
from  stock  are  such  as  by  their  exertions  add  to  the  wealth  of 
society.  They  are  "  productive."  (2)  Laborers  who  are  paid 
from  revenue  and  render  services  simply.  They  minister  to 
personal  enjoyment,  but  their  product  perishes  with  the  first 
use,  and  there  is  added  nothing  to  social  wealth.  Such  labor 
is  "  unproductive."  Adam  Smith  makes  it  clear  that  produc- 
tive processes  extend  over  periods  of  time,  and  that  wages  are 
advanced  to  laborers  by  the  owners  of  wealth  as  the  result  of 
a  bargain.  But  the  exact  nature  of  the  funds  held  by  employ- 
ers is  not  made  lucid.2  Thus  there  are  two  theories  of  wages 
in  the  Wealth  of  Nations.  One  is  the  minimum  wage  theory* 
the  other  is  the  theory  of  demand  and  supply,  the  latter  con- 
nected with  the  idea  of  funds  for  the  payment  of  wages. 

Ricardo's  treatment  differed  somewhat  from  Adam  Smith's. 
The  minimum  wage  is  with  Ricardo  the  natural  price  of  labor, 
a  reward  which  is  "  necessary  to  enable  the  laborers,  one  with 
another,  to  subsist,  and  to  perpetuate  their  race,  without  either 
increase  or  diminution."  Any  deviation  from  this  rate,  by  the 
operation  of  supply  and  demand  is  called  a  "  market "  rate. 
The  laborers  are  in  a  flourishing  and  happy  condition  if  the 
market  rate  is  above  the  natural  rate,  and  in  a  "  most  wretched  " 
condition  if  it  is  below  the  natural  rate.  This  statement  is 

1  Rogers'  2d  ed.,  v.  I,  p.  70. 
'Taussig,  Wages  and  Capital,  p.  150. 


357]  CRITICISM  6! 

much  qualified  by   Ricardo  later,  either  in  statement  or   in 
emphasis,  as  follows : 

1.  The  "  natural  "  rate  is  not  to  be  understood  as  absolutely 
fixed.     The  habits  and  customs  of  the  people  make  a  difference 
between  different  nations,  and  between  different  periods  of  the 
same  nation. 

2.  Notwithstanding  the  statement  of  the  importance  of  the 
standard  of  life,  it  is  practically  ignored  in  the  subsequent  dis- 
cussions on  taxation,  and  the  general  problems  of  distribution. 

3.  Market  wages  seem  to  have  small  interest  to  Ricardo, 
probably  because  natural  wages  furnished  the  key  to  distribu- 
tion. 

Revenue  nowhere  appears  as  playing  a  part  in  the  demand 
for  labor.  He  took  into  consideration  only  those  laborers  who 
are  hired  by  capitalists  with  a  view  to  realize  on  the  invest- 
ment, and  so  far  as  market  wages  are  considered,  he  regards 
them  as  determined  by  the  relation  of  capital  and  population. 
In  his  essay  "  On  the  Influence  of  the  Low  Price  of  Corn  on  the 
Profits  of  Stock,"  Ricardo  says  that  the  rise  or  fall  of  wages  in 
the  stationary  state  is  regulated  wholly  by  the  increase  or  de- 
crease of  the  population.  In  the  advancing  state  it  depends  on 
whether  the  capital  or  population  advance  at  the  more  rapid 
course.  In  the  retrograde  state  it  depends  upon  whether 
population  or  capital  decrease  with  the  greater  rapidity.1 

As  the  income  mentioned  by  Adam  Smith  was  that  of  the 
employer,  and  in  his  view  would  exercise  influence  on  wages 
only  so  far  as  it  was  used  to  employ  domestic  servants,  the  in- 
come side  of  Adam  Smith's  wages-fund  would  be  naturally 
neglected  so  soon  as  writers  come  to  regard  the  most  im- 
portant case  of  wages  as  arising  when  men  were  employed  for 
a  profit.  Neglected  it  certainly  was  and,  if  for  the  reason 
stated  above,  the  negligence  is  justified.  But  viewing  Eco- 
nomics from  the  side  of  production,  and  production  from  the 

1  Works,  p.  379. 


62  GERMAN  WAGE   THEORIES  [358 

side  of  capital,  English  writers  were  led  away  from  consump- 
tion and  the  demand  of  consumers  as  leaders  in  economic 
activity.  It  is  at  this  point  that  Hermann  made  a  departure 
from  the  traditions  of  the  science,  and  intercepted  the  parallel 
course  of  thinking  on  wages  in  England  and  Germany.  Cap- 
ital is  repudiated  as  the  source  and  determinant  of  wages.  The 
key  to  the  situation  is  no  longer  held  by  the  employers  but  by 
the  consumers.  Employers  are  mere  agents,  middlemen,  who 
do  the  consumers'  bidding  for  a  commission.  The  consumer 
is  the  real  buyer  of  labor.  All  the  steps  leading  to  the  final 
product  are  taken  for  the  final  consumer.  The  true  and  con- 
tinuous source  of  compensation  for  production  is  the  income 
of  the  buyer  of  the  product  for  his  own  use. 

This  doctrine  has  been  followed  generally  by  the  German 
economists ;  but  in  England  it  has  not  received  very  strong 
support.  In  the  first  place,  Mill  attacked  its  main  position  in 
his  famous  proposition  that  a  demand  for  commodities  is  not  a 
demand  for  labor.  Mill  thought  it  important  to  support  this 
proposition  because  its  contrary  was  so  widely  assumed  by 
common  apprehension ;  and  because,  with  the  exception  of 
Say  and  Ricardo,  most  economists  fell  into  the  error  in 
some  part  of  their  thinking.  Up  to  Mill's  time,  however,  it 
formed  no  integral  part  of  their  theories  of  wages.  Although 
of  late  some  of  Mill's  reasoning  on  this  point  is  not  accepted, 
the  whole  of  it  passed  practically  unchallenged  for  twenty 
years.  In  the  second  place,  when  Longe  and  Thornton 
adopted  Hermann's  point  of  view,  and  tried  to  persuade  their 
countrymen  of  its  soundness,  with  some  success,  if  judged  by 
Mill's  action,  Cairnes  submitted  the  doctrine  to  a  careful 
analysis  and  published  the  results  in  the  form  of  an  elaborate 
attack  in  his  "  Some  Leading  Principles  in  Political  Economy 
Newly  Expounded." 

There  is  something  very  plausible  in  the  idea  that  demand 
for  commodities  determines  the  aggregate  amount  of  wealth 
spent  in  wages.  It  is  of  a  kind  with  the  popular  conviction 


359]  CRITICISM  63 

that  the  "  extravagance  of  the  rich  is  the  gain  of  the  poor,"  or 
that  "  profusion  is  for  the  good  of  trade."1 

The  source  of  the  error,  as  to  wages,  seems  to  be  the  failure 
to  distinguish  between  general  and  particular  wages,  wages  of 
all  laborers  and  those  of  groups  of  laborers.  The  discussions 
on  wages  are  for  the  most  part  grouped  about  three  questions : 
(i)What  is  the  true  source  of  the  quantity  of  real  goods  which 
laborers  as  a  body  receive  ?  (2)  What  determines  the  quan- 
tity ?  (3)  What  determines  the  share  of  any  particular  group  ? 
Let  us  consider  briefly  these  questions  in  the  order  stated. 

I.  It  is  evident  that  it  is  from  the  total  productions  of  society 
that  ultimately  all  wages  must  come.  It  is  also  evident  that, 
under  our  present  system,  wages  cannot  absorb  the  whole  of 
that  product.  The  first  difference  of  opinion  appears  when 
the  attempt  is  made  to  designate  the  particular  part  of  this 
total  product  which  furnishes  wages,  or  the  habitual  form 
which  it  assumes  as  a  source  of  wages. 

All  goods  have  a  career.  For  some,  the  career  is  short,  for 
others  long ;  some  are  destined  to  give  direct  enjoyment  to 
society,  others  to  help  in  the  process  of  production.  The  trac- 
ing of  the  career  of  goods  is  a  comparatively  simple  process. 
Under  our  wage  system  they  are  first  in  the  hands  of  the  en- 
trepreneur class,  then  in  those  of  the  trading  classes,  and  finally 
in  those  of  the  consumers  or  users.  To  be  sure,  some  goods 
suffer  destruction  by  fire  and  some  by  accident,  while  some  may 
revert  to  the  trading  classes  as  second-hand  goods ;  but  if  they 
fulfill  their  proper  destiny,  they  finally  disappear  in  the  users' 
hands.  There  is  a  continual  inflow  at  the  one  end  of  the  line, 
and  a  continual  outflow  at  the  other.  The  complication  comes 
when  we  attempt  to  note  the  causes  which  determine  the  posi- 
tions which  classes  hold  with  reference  to  the  flow  and  ebb  of 
goods,  and  the  relations  of  the  classes  to  each  other  as  an  out- 
come of  the  various  positions.  Could  we  cause  the  economic 

1  Cairnes,  Political  Economy,  p.  163. 


64  GERMAN  WAGE  THEORIES  [360 

flux  and  the  social  flux  to  cease  for  a  time  while  we  noted  the 
various  positions  of  goods  and  classes,  we  would  find  some 
goods  just  issuing  forth,  others  passing  away,  still  others  in  all 
stages  of  intermediate  progress.  We  should  also  find  all 
classes  of  men  concerned  with  the  dissipation  of  goods  in  the 
process  of  what  we  call  consumption.  There  is  great  diversity 
in  the  value  of  goods  thus  consumed,  as  also  in  the  economy 
and  profuseness  of  consumption. 

Of  these  some  take  no  part  whatever  in  the  inflow  of  goods. 
Of  those  who  do,  we  distinguish  (i)  the  so-called  small  pro- 
ducer who  combines  his  labor  with  some  accumulation  in  the 
production  of  goods  ;  (2)  those  who  have  large  accumulations 
of  their  own,  or  that  which  belongs  to  others  ;  (3)  those  who 
have  little  or  no  accumulation,  and  are  employed  by  the 
second  class.  The  problem  of  distribution  is  a  study  of  the 
causes  which  determine,  for  final  consumption,  the  propor- 
tionate assignment  of  the  total  productions  of  society  to  social 
classes.  And  the  wage  problem,  as  a  part  of  the  question  of 
distribution,  so  far  as  the  source  of  wages  is  concerned,  is  a 
double  one.  ist,  To  what  stage  must  products  arrive  before 
they  become  the  source  of  wages  ?  2d,  Into  the  possession  of 
what  class  must  they  come  to  be  such  a  source  ?  Some  hold 
that  the  source  of  wages  is  a  portion  of  wealth  held  by  em- 
ployers in  its  form  of  food  (capital) ;  others  that  part  which  the 
laborers  have  immediately  helped  to  produce  (product) ;  still 
others  that  part  held  by  dealers  of  commodities  in  the  form  of 
laborers'  consumption  goods  held  for  sale,  i.  e.,  capital  in  the 
hands,  not  of  employers,  but  of  merchants;  and,  finally,  some 
regard  it  as  that  part  of  wealth  which  is,  or  is  about  to  be,  in 
the  hands  of  the  consumers  of  laborers'  product  as  a  money 
income.  Hermann  and  his  followers,  of  course,  are  identified 
with  the  last  view. 

II.  The  second  question  pertains  to  the  determination  of 
the  quantity  of  real  goods  going  to  labor.  As  men  differ  in 
regard  to  the  source  of  wages,  so  they  differ  as  to  the  cause  of 


361]  CRITICISM  65 

the  amount.  Those  who  look  to  the  employers'  capital  as  the 
source,  think  that  the  state  of  the  arts  principally  determines 
what  portion  of  total  capital  shall  be  used  to  employ  labor. 
This  determines  the  sum  total  that  can  be  divided  among 
laborers.  Those  who  look  to  labor's  product  as  the  source, 
lay  stress  upon  labor's  efficiency  or  productivity  as  chiefly 
fixing  the  quantity.  Here  the  element  of  time  is  important, 
for  in  short  periods  contract  may  prevent  an  adjustment  to 
efficiency.  A  perfect  competition  on  the  part  of  capitalists  is 
also  postulated  in  order  that  interest  may  be  kept  at  a  mini- 
mum rate  and  prevented  from  absorbing  the  share  of  laborers. 
Those  who  look  to  merchants'  capital  as  the  source  of  real 
wages  make  the  volume  of  the  flow  of  consumable  goods  to 
laborers  dependent  upon  the  volume  of  money  wages.  Such 
wages  are  in  general  dependent  upon  employers'  means. 
Hence  a  rise  in  wages,  other  things  being  equal,  can  occur 
only  if  the  directors  of  industry  are  able  to  add  to  their  money 
resources  and  enlarge  their  undertakings.  Finally,  those  who 
appeal  to  the  income  of  consumers  rest  their  case  upon  the 
assumption  of  a  more  or  less  definite  proportion  between 
wages  and  consumers'  income.  This  is  also  the  point  of  view 
of  Hermann  and  his  followers.  For  completeness  there  ought 
to  be  some  attempt  to  distinguish  between  the  power  of  con- 
sumption of  laborers  and  that  of  other  classes,  and  the  extent 
to  which  laborers  are  the  consumers  of  their  own  products. 
On  the  most  superficial  view,  it  must  appear  that  laborers  and 
their  families,  constituting  as  they  do  a  considerable  propor- 
tion of  the  population,  are  large  consumers  of  their  own  pro- 
ducts. Just  in  so  far  as  this  is  true,  wages  appears  as  a 
determinant  of  itself,  and  thus  we  reason  in  a  circle.  Her- 
mann did  not  escape  this  kind  of  reasoning,  though  Brentano 
did. 

III.  Writers  on  wages  have  not  always  distinguished  be- 
tween general  wages  and  group  wages.  Some  have  evolved  a 
theory  explanatory  of  the  wages  of  laborers  as  one  body 


66  GERMAN  WAGE  THEORIES  [362 

opposed  to  all  other  classes.  They  have  determined  certain 
principles  applicable  to  the  larger  problem,  and  then  have  pro- 
ceeded to  draw  certain  conclusions  about  the  wages  of  groups 
based  upon  those  principles,  without  perceiving  the  change  of 
problem.  Others  have  pursued  the  opposite  policy.  Having 
perhaps  correctly  observed  the  relation  of  cause  and  effect  in 
the  case  of  wages  of  groups,  the  principles  so  evolved  are 
likewise  used  as  a  solution  of  the  other  problem,  which  is  so 
different.  Hermann  and  his  followers  seem  to  be  guilty  of 
this  last  error.  They  observed  that  individual  employers  enter 
upon  industry  with  a  view  to  gain  profit,  that  they  regulate 
their  production  by  their  customers'  demands.  If  demand 
increases,  more  is  invested;  if  demand  falls,  less  is  invested. 
This  increase  or  decrease  of  investment  carries  with  it  corre- 
sponding changes  in  the  amount  paid  in  wages.  As  individual 
employers  do,  all  do ;  therefore  wages  depend  ultimately  upon 
consumers'  demand. 

If  we  have  regard  to  a  single  industry,  it  seems  clear  that 
the  investment  of  capital  and  the  total  amount  paid  in  wages 
follow  closely  the  lead  of  consumers'  demand.  There  can 
be  little  question  but  that  it  is  effective  in  distributing  the 
relative  amounts  of  capital  over  the  whole  field  of  pro- 
duction. Production  is  for  no  other  purpose  than  to  meet 
the  varying  demands  of  men,  and  capital  is  ever  on  the  alert 
to  anticipate,  if  possible,  the  growing  and  changing  wants  of 
humanity.  There  is  thus  a  re-shifting  of  industry  and  employ- 
ment, and  wages  are  sensibly  affected,  at  least  for  short  periods. 
However,  even  here  it  can  scarcely  be  said  that  demand 
determines  the  amount  of  investment.  What  it  does  is  to 
influence  it  more  or  less.  These  matters  are  important  as 
throwing  light  on  the  determination  of  group  wages.  But  the 
problem  of  general  wages  is  a  different  one.  Here  we  view 
income  as  a  whole,  and  industry  as  a  total.  The  effectual 
demand  of  society  is  the  offer  of  total  income.  We  are  unable 
to  conceive  of  an  increase  or  decrease  of  demand  without  at 


263]  CRITICISM  67 

the  same  time  conceiving  an  increase  or  decrease  of  produc- 
tion. In  the  view  of  Hermann,  an  increased  demand  is  viewed 
as  a  cause  of  which  increased  investment  and  increased  pro- 
duction is  the  effect.  While  viewing  total  demand  and  total 
production,  increased  production  must  ever  be  the  cause  of 
increased  demand.  We  see,  therefore,  how  unfitted  this  theory 
is  as  an  explanation  of  general  wages,  although  it  may  throw 
light  on  particular  wages.1 

1  See  Cairnes,  Political  Economy,  and  Taussig,  Wages  and  Capital. 


CHAPTER  IV 

VON    THUNEN 

JOHANN  HEINKICH  VON  THUNEN,  born  1783,  died  1850,  was 
a  Mecklenburg  aristocrat  who,  as  a  scientific  land  cultivator, 
endeavored  to  put  to  a  test,  on  his  own  property,  the 
theoretical  conclusions  of  his  economic  studies.  He  is  re- 
garded by  the  Germans  as  their  most  original  theoretical 
economist.  As  a  close  student  of  English  political  economy 
he  professed  to  have  little  confidence  in  its  conclusions;  yet  he 
did  not  succeed  in  emancipating  himself  from  either  the  char- 
acteristic method,  or  some  of  the  more  important  results  of  his 
English  preceptors.  There  runs  through  his  thinking  on  the 
subject  of  wages  the  fundamental  assumption  that  neither 
wages  nor  interest  can  rise  except  at  the  expense  of  the  other. 
They  are  supplied  from  a  fixed  amount,  and  whatever  causes 
a  rise  in  one  must  produce  a  corresponding  fall  in  the  other. 
He  proceeds,  as  Smith  and  Ricardo,  did  by  assuming  simple 
primitive  conditions  or  hypothetical  cases.  His  method  is 
wholly  deductive  and  highly  abstract. 

Thiinen's  confidence  in  future  economic  peace  is  disturbed 
by  his  belief  that  the  laborer  is  separated  from  the  results  of 
his  productive  power.1  It  was  his  opinion  that,  so  long  as 
such  a  state  of  things  lasts,  hostility  between  labor  and  capi- 
tal is  inevitable  and  not  without  justification.  Under  present 
arrangements  labor  does  not  get  all  it  produces,  but  there  is  no 
reason  in  justice  why  it  should  not.  It  is  not  enough  to  ask 
what  wages  are.  We  must  enquire  what  wages  ought  to  be. 

1  Der  Isolirte  Staat,  ii,  p.  210. 
68  [364 


365]  VON  THUNEN  go 

Wages  are,  roughly  speaking,  determined  by  the  relation  of 
supply  and  demand,  and  under  this  influence  they  tend  to  the 
standard  of  life  minimum.  This  point  is  treated  in  a  most 
original  manner,  if  we  remember  that  it  was  written  in  the 
early  part  of  this  century.  Business  men  will  employ  addi- 
tional laborers  up  to  the  point  at  which  the  last  laborer 
employed  produces  his  own  wages;  beyond  that  they  can- 
not go  without  loss ;  to  that  point  self-interest  prompts 
them  to  go.  Under  the  operation  of  competition  all  laborers 
of  like  grade  receive  the  same  wages  as  the  last  one  em- 
ployed. If  at  this  point  all  are  miserable,  what  remedy  is 
there  ?  The  undertaker  cannot  be  blamed,  for,  while  he 
may  make  a  surplus  from  the  earlier  laborers  employed,  to 
suppose  that  he  will  bestow  it  as  a  free  gift  to  his  laborers 
is  to  fail  to  distinguish  between  moral  obligations  and  busi- 
ness principles.  A  rise  in  wages  without  a  decrease  in  the 
number  of  laborers  employed  is  not  possible,  for  then  the  last 
employed  laborer  produces  less  than  his  wages.  Employers 
must  discharge  men  until  wages  equal  production.  On  the 
other  hand,  rather  than  remain  breadless,  discharged  men  are 
willing  to  work  at  a  figure  which  makes  their  employment 
possible.  If  we  suppose  an  increase  in  the  number  of  laborers 
without  a  corresponding  increase  of  capital  and  land,  wages 
must  fall,  for  the  undertaker  can  employ  additional  labor  only 
on  less  productive  objects.  If  laborers  increase,  in  spite  of 
sinking  wages,  the  only  limit  to  population  is  the  means  of  sub- 
sistence. How  productive  the  object  is  upon  which  the  last 
laborer  is  employed  depends  upon  the  supply  of  labor.  The 
greater  the  supply  of  labor,  the  less  productive  will  the  capital 
be  upon  which  the  last  laborer  employed  works.  To  what 
limit  wages  may  sink  depends  upon  the  sum  of  the  means  of 
subsistence.  Between  the  real  worth  of  labor,  the  supply  of 
labor,  and  the  means  of  subsistence  of  labor  there  is  an  inti- 
mate connection.  The  economists  have  considered  the  last 
two  factors  only,  and  have  thereby  drawn  the  conclusion  that 


jro  GERMAN  WAGE   THEORIES  [366 

Providence  has  designed  for  laborers  nothing  except  necessary 
support  during  the  period  of  their  life.1  Such  a  conclusion  can 
not  be  admitted,  and  will  be  found  to  be  scientifically  unten- 
able when  we  have  investigated  the  real  worth  of  labor. 

Von  Thunen  complained  that  Adam  Smith's  law  of  the  rela- 
tion of  supply  and  demand  as  determining  wages  was  dependent 
upon  changes  in  the  national  wealth.  He  desired  to  discover  a 
law  of  wages  for  a  persistent  condition  of  society.  In  such  a 
condition,  demand  and  supply  are  in  equilibrium ;  each  cancels 
the  other.  Since  they  appear  to  be  inactive,  there  must  be  some 
other  law.  To  the  question,  what  is  the  natural  share  of  the 
laborer  in  products  brought  forth  by  him,  Adam  Smith 
answers,  that  which  he  usually  gets.  But  that  which  he 
usually  gets  through  competition  is  subject  to  continual 
change.  We  must  ask  which  one  of  all  those  actually  received 
is  the  right  one,  the  natural  one.  Adam  Smith  did  not  investi- 
gate this  question.2 

If  we  compare  von  Thiinen's  conception  of  natural  wages 
with  that  of  Ricardo's,  we  find  them  quite  different.  Ricardo 
was  the  analyst  of  actual  economic  facts.  In  the  realm  of 
distribution  he  sought  to  establish  no  reform.  Hence  he  of- 
fered no  criticisms  of  the  social  method  of  awarding  shares. 
To  his  mind  the  essential  task  at  that  time  was  to  establish,  if 
possible,  beyond  all  question,  what  the  social  method  actually 
was.  He  found  it  convenient  to  adopt  Adam  Smith's  distinc- 
tion between  wages  which  fluctuate  in  short  periods  accord- 
ing to  the  varying  strength  of  demand  for  labor,  and  wages 
which  prevail  in  the  long  run  and  are  connected  with  the  de- 
crease or  increase  of  population.  Ricardo  called  wages  nat- 
ural which  enabled  laborers  under  the  influence  of  climate  and 
habit  to  perpetuate  their  kind  without  increase  or  diminution. 
Von  Thiinen's  interest  in  economic  questions  was  different. 

1  Der  Isolirte  Staat,  ii,  p.  86-90. 
*  Der  Isolirte  Staat,  ii,  p.  64. 


367]  VON  THUNEN  7l 

He  was  not  less  keenly  alive  than  Ricardo  to  the  importance 
of  a  theoretical  statement  of  actual  distribution,  and  in  this 
field  he  achieved  probably  as  notable  success.  But  he  brooded 
over  the  miseries  of  the  poor,  and  sought  for  the  causes  in  the 
national  economic  system.  To  him  a  wage  which  was  divorced 
from  correspondence  with  production  was  unjust  and  unnat- 
ural. In  a  word,  he  called  wages  natural  when  they  were  in 
agreement  with  justice ;  and  justice  required  that  a  man  should 
be  rewarded  according  to  his  production.  But  in  seeking  the 
law  of  wages  the  interests  of  both  capitalists  and  laborers 
must  be  taken  into  account. 

To  eliminate  the  complicating  effect  of  rent,  von  Thiinen 
seized  upon  the  idea  of  the  isolated  community.  He  supposes 
a  large  city  situated  in  the  centre  of  a  fruitful  plain.  To 
eliminate  unnecessary  causes  of  unequal  opportunity,  he  sup- 
poses the  plain  not  crossed  by  river  or  canal.  At  a  consider- 
able distance  from  the  city  the  plain  ends  in  a  wilderness  which 
wholly  separates  the  supposed  state  from  the  rest  of  the  world. 
All  laborers  are  equally  strong,  wise  and  skillful.  The  num- 
ber of  laborers  remains  the  same,  i.  e.,  there  are  just  enough 
children  brought  to  maturity  to  fill  the  ranks  depleted  by  age 
and  death.  The  population  is  also  so  limited  that  plenty  of 
land  awaits  occupation.  Hence  there  is  a  border  where  no 
rent  is  paid,  for  rather  than  pay  rent  the  Bauer  would  take  new 
land.  Conditions  on  the  border  determine  for  the  entire  com- 
munity what  wages  shall  be  paid,  for  there  wages  are  not 
determined  by  the  will  of  the  employer,  the  competition  of 
laborers,  or  the  means  of  subsistence,  but  by  what  the  laborer 
can  himself  produce.  Such  wages  are  paid  throughout  the 
entire  community  by  the  force  of  competition.  Conditions  on 
the  border  also  determine  interest,  since  there  capital  has  its 
highest  uses,  and  being  highly  volatile,  it  finds  the  place  of 
highest  reward.  Von  Thiinen  was  careful  to  credit  as  much 
to  interest  as  belonged  to  it.  Not  all  that  falls  into  laborers' 
hands,  ostensibly  as  wages,  is  properly  to  be  considered  as 


72  GERMAN  WAGE  THEORIES  [368 

such.  Nearly  all  workmen  are  furnished  with  equipment  of 
one  sort  and  another,  such  as  implements  or  tools  to  assist 
them  in  labor,  and  a  part  of  what  they  receive  is  to  be  ac- 
credited to  interest  for  their  use. 

In  order  that  labor  may  not  be  at  the  mercy  of  competition, 
he  supposes  conditions  under  which  labor  may  freely  apply 
itself  to  unoccupied  land.  An  investigation  as  to  how  high 
wages  may  be  under  these  conditions  will  teach  us  what 
natural  wages  are,  for  here  the  laborer  will  get  what  belongs 
to  him.  The  total  product  is  divided  between  two  claimants : 
laborers  and  capitalists.  It  will  be  found  that  the  interests  of 
both  are  best  subserved  when  the  so-called  natural  wages  are 
paid.  The  problem,  then,  is  to  determine  the  relation  of  the 
rate  of  wages  to  the  rate  of  interest.  This  Von  Thunen  at- 
tempts to  do  by  reducing  the  efficiency  of  capital  to  labor- 
terms.  It  involves  the  most  difficult  problem  of  determining 
the  shares  attributable  to  labor  and  capital  out  of  a  product 
which  is  the  result  of  the  two  in  co-operation.  Before  enter- 
ing upon  this  discussion,  it  will  be  perhaps  best  to  give  some 
explanation  of  the  mathematical  terms  employed. 

A  represents  the  wages  for  the  year  of  a  family,  including 
the  wife  and  young  children  under  fourteen  years  old.  These 
wages  are  expressed  in  bushels  of  rye.  To  determine 
how  much  such  a  family  would  consume  would  manifestly 
depend  upon  the  number  of  children.  In  this  investigation  it 
is  von  Thiinen's  aim  to  find  a  law  for  the  regulation  of  wages 
and  rate  of  interest  for  the  stationary  state  of  society;  hence 
the  working  population  is  supposed  to  be  constant.  Each 
family  will  therefore  on  the  average  succeed  in  raising  a  suffi- 
cient number  of  children  to  replace  the  losses  by  age  and 
death.  The  necessaries  of  life,  which  are  required  to  keep 
such  an  average  family  in  labor  power  for  a  year,  are  assumed 
to  be  such  value  as  is  equal  to  the  value  of  a  bushel  of  rye. 
If  from  the  total  wages  A  the  necessaries  be  subtracted,  there 
will  be  a  surplus  which  is  designated  by  the  letter  y.  Then 


369]  VON  THUNEN  73 

A  =  a  +y.  That  part  of  the  gross  product  which  is  left  after 
deducting  repairs  of  all  sorts,  costs  of  raw  material,  and  admin- 
istration, as  well  as  profits  to  the  undertaker  as  such,  is  called 
by  Thiinen  the  "  product  of  labor."  This  is  a  technical  ex- 
pression, as  evidently  the  product  is  the  joint  result  of  the  co- 
operation of  labor  and  capital.  If  we  divide  the  product  of 
labor  by  the  number  of  laborers  employed,  we  get  the  amount 
of  the  labor-product  of  one  man,  which  is  designated  by  "/." 
We  now  turn  to  the  reduction  of  the  efficiency  of  capital  to 
labor-terms,  and  it  is  necessary  to  follow  our  author  somewhat 
closely.  If  we  suppose  a  capital  Q  and  a  wage  a  +  y  expressed 
in  bushels  of  rye,  dollars,  or  any  other  measure  of  value,  and 
that  Q  be  divided  by  a  +jy,  we  have  as  a  result  an  expression 
for  capital  in  terms  of  the  year's  labor  of  a  family,  or  we  have 
discovered  how  many  years'  labor  of  a  family  a  capitalist  with 
Q  capital  can  employ.1  If  this  labor  quantity  be  represented 

by  nq,  then  —  ^—  =  nq,  and  Q  —  nq  (a  -f-  y).     If  a  +y  be  re- 
a  +y 

garded  as  equivalent  to  a  unit  of  capital,  then  Q  =  nq  units  of 
capital.  In  case  the  capitalist  lends  his  capital  to  an  under- 
taker who  employs  n  laborers,  then  each  laborer  is  assisted  by 

—  =  q  capital.     The  product  of  a  laborer  employed  with  a 

capital  q  for  a  year  is  designated  by  "//"  p,  then,  is  a  joint 
product,  and  the  problem  is  to  find  an  equitable  division  be- 
tween the  laborer  and  capitalist.  If  n  laborers  are  employed, 
the  product  of  all  laborers  is  np  \  their  wages  are  n(a  -f-  y)  ;  the 
capitalist  has  the  difference  :  np  —  n  (a  +  y~)  =  n  (p  —  [a  +JK]  ). 
The  capital  employed  is  nq(a-\-y).  If  the  rate  of  interest  be 


n(p—\a  +7])     P  —  (a+y)        ^. 

designated  by  z,  then  z  =     v      /       "(-=*—  r*  —  £*•       The 

nq(a+y)  q(a+y) 

laborer's  share  can  now  be  expressed  in  terms  of  labor-product, 
rate  of  interest,  and  capital. 


lDer  Isolirte  Staat,  ii,  p.  124. 


74  GERMAN  WAGE  THEORIES  [370 

From  z  —  ^—.  -  ~  is  obtained  qz(a+y\-=  p  —  (a-\-y}\ 
q  (a  -\-y] 

from  this  is  obtained  the  following: 

(i  -f  qz]  (a  +  y)  =  p  ;  whence 

a  +  y  =  —  —  —  =  laborer's  share. 
I+f» 

The  capitalist's  share  is  found  by  subtracting  the  laborer's  share 
from  the  product  of  labor  : 


/  --  «-  =  t±PV=P-  «  ^          _  capitalist's  share. 
1  +  qz  I  +  qz  \+  qz 

From  the  above  it  appears  that  the  relation  of  the  laborer's 
share  to  that  of  the  capitalist  is  as  I  :  qz.  This  relation  may  be 
variously  expressed  :  The  reward  of  q  units  of  capital  equals 
the  wages  of  qz  laborers,  and  the  reward  of  one  unit  of  capital  is 
equal  to  the  wages  of  z  laborers,  or  as  is  subsequently  required 
in  the  discussion  :  The  wages  of  one  year's  labor  are  to  the  earn- 
ings of  q  units  of  capital  as  I  is  to  qz,  or  the  wages  of  one  year's 
labor  are  to  the  earnings  of  one  unit  of  capital  as  I  is  to  z. 

Von  Thiinen  has  now  succeeded  in  finding  a  mathematical 
expression  for  the  relation  of  the  reward  of  capital  and  labor. 
He  must  proceed  one  step  further  to  express  the  relation  of 
their  efficiencies.  Since  in  the  production  of  one  and  the  same 
product  /,  a  part  of  the  capital  may  be  replaced  by  labor  and 
vice  versa,  it  appears  that  each  is  a  competitor  of  the  other. 
It  is  therefore  in  the  power  of  the  undertaker  who  with  Q 
capital  hires,  say  n  laborers,  to  give  any  desirable  value  to  q 
by  increase  or  decrease  of  the  number  of  laborers.  The 
undertaker  who  knows  and  follows  his  interest  will  raise  q  to 
the  point  where  capital-cost  and  labor-cost  are  in  direct  relation 
to  the  efficiency  of  both.  Hence  the  reward  of  both  capital  and 
labor  is  measured  by  the  efficiency  of  each.1  If  the  reward  of 
labor  is  to  the  reward  of  capital  as  I  is  to  z,  and  the  efficiency  of 
labor  is  to  the  efficiency  of  capital  as  the  reward  of  labor  is  to 

lDer  Isolirte  Staat,  ii,  p.  126. 


37 1  ]  VON  T HUN  EN  75 

the  reward  of  capital,  then  the  efficiency  of  labor  is  to  the  effi- 
ciency of  capital  as  I  is  \.Q  z.  We  arrive,  then,  at  the  following 
very  important  conclusion  :  When  capital  and  human  labor  are 
measured  by  the  same  rule,  viz.,  the  year's  labor  of  an  individ- 
ual man,  the  rate  of  interest,  " z"  is  the  factor  by  which  the 
relation  of  the  efficiency  of  capital  and  that  of  labor  is  ex- 
pressed. By  this  we  can  reduce  to  labor  terms  the  co-operation 
of  capital  in  the  production  of  goods.  Furthermore,  in  so  far 
as  land  rent  does  not  enter,  it  is  possible  by  this  to  express  in 
terms  of  labor  the  cost  of  production  of  a  commodity,  and 
thereby  labor  becomes  a  true  measure  of  the  value  of  goods.1 
The  place  which  the  "  reduction  of  the  efficiency  of  capital  to 
labor-terms  "  has  in  the  general  discussion  will  be  more  clearly 
seen  later  on.  Von  Thunen  has  to  exercise  constant  care  that 
at  every  step  in  the  process  no  unknown  term  shall  be  allowed 
to  do  duty  for  known  ones.  He  started  out  to  obtain  an  ex- 
pression for  natural  wages.  He  has  obtained  an  expression  for 
wages  under  existing  conditions  with  which  he  cannot  rest,  for 
it  contains  too  many  unknown  quantities.  In  the  expression 

a  -\-y  —     \_   -  the  value  of  a  + y  is  dependent  upon  the  value 

of  z,  so  that  to  get  the  value  of  a-\-  y  we  must  know  the  value 
of  z.  Now  p  is  not  constant,  but  increases  and  diminishes 
with  the  value  of  q  and  is  therefore  dependent  upon  it.  Upon 
the  value  of  /  depends  again  the  value  of  y  and  z.  There- 
fore p,  y  and  z  are  functions  of  q.  The  problem  therefore 
is  to  find  the  value  of  />,  y  and  z  for  a  given  value  of  q?  He 
then  turns  to  his  favorite  hypothetical  society  in  paragraph 
14,  in  which  he  says  that  it  is  on  the  margin  of  cultivation 
of  the  isolated  state  that  we  are  to  find  the  conditions 
for  the  development  of  the  relation  between  wages  and  the  rate 
of  interest.3  Here  it  is  possible  to  be  free  from  the  confusion 

1  Der  holirte  Staat,  ii,  p.  127.  *  Ibid.,  p.  139. 

s  Ib id.,  p.  140. 


76  GERMAN  WAGE  THEORIES  [372 

due  to  the  presence  of  land  rent.  Here  laborers  are  free  to 
choose  whether  they  will  continue  as  wage  laborers  or  move  to 
unoccupied  land  and  lay  out  a  property  of  their  own.  If 
laborers  are  to  be  kept  as  farm  hands,  their  total  income,  made 
up  of  wages  and  interest  upon  capital  required  to  lay  out  a 
farm,  must  equal  the  product  of  labor  procurable  from  a  marginal 
farm  which  they  might  themselves  have  laid  out.1  Von  Thunen 
expresses  this  mathematically.  If  wages  =  a  +y,  product  of 
labor  =/  and  the  capital  required  to  lay  out  a  small  farm  = 
q(a+y) — all  expressed  in  bushels  of  rye — and  the  rate  of  in- 
terest =  z  per  cent.,  then  that  laborers  may  be  retained  the 
following  equation  must  hold:  a+ y  +  q(a  +y)z=p.  From 

this  results:  a  +  y= — f- —  ;  and  z  =       ,     , — v.     In    this  ex- 
I  +  qz'  q(a  +y) 

pression  under  the  conditions  assumed  a,  p  and  q  are  constant 
quantities,  only  y  and  z  being  variable.  It  is  of  the  first  im- 
portance to  find  the  exact  relation  between  y  and  z,  for  upon 
that  solution  depends  a  knowledge  of  the  relation  between 
wages  and  interest.2  He  then  undertakes  to  find  an  expression 
for  y  which  does  not  contain  the  quantity  for  z. 

He  supposes  that  a  number  of  laborers  form  a  combination 
on  the  margin  of  cultivation  of  the  isolated  state  to  put  into 
cultivation  a  new  farm.  That  there  may  be  no  disadvantage 
attached  to  this  farm  on  account  of  its  size,  it  is  supposed  to 
be  as  large  as  the  average  in  the  state.  The  laborers  united 
for  this  purpose  divide  themselves  into  two  groups.  Group  I 
is  busied  preparing  the  land  for  cultivation,  erecting  buildings, 
etc.  Group  II  is  composed  of  men  who  for  the  time  being 
remain  as  laborers  for  hire,  and  by  means  of  the  surplus  which 
they  have  above  that  required  for  their  own  support,  offer  the 
means  of  support  of  Group  I.  Under  these  conditions,  says 
von  Thunen,  in  the  preparation  of  the  farm,  none  of  the 
existing  national  capital  is  consumed.  The  sum  of  those 

1  Der  Lolirte  Staat,  ii,  p.  141.  *Ibid.,  p.  142. 


373]  VON  THUNEN  77 

objects  of  value  after  completing  the  farm  is  as  great  as  be- 
fore its  completion.  The  new  farm  has  cost  labor,  and  noth- 
ing but  labor.1  These  two  groups  of  laborers  have  really 
devoted  their  surplus  to  the  production  of  this  farm,  and 
the  farm  may  be  spoken  of  as  their  invested  capital,  the 
interest  of  which  must  come  from  the  future  products  of 
the  farm.  Groups  I  and  II  are  called  throughout  von 
Thunen's  discussion  "  capital  producing  laborers."  Now  the 
question  occurs,  how  shall  the  wages  of  farm  hands  be  de- 
termined? Von  Thunen  answers  that  it  must  be  sufficiently 
high  so  that  the  surplus  of  a  laborer  put  out  at  interest  will 
equal  the  interest  of  a  "  capital  producing  laborer;"  for  if  this 
were  not  the  case  the  laborers  would  immediately  go  to  capi- 
tal producing.  It  is  the  interest  of  each,  both  laborers  and 
capitalists,  to  get  as  high  a  return  as  possible,  but  there  is  no 
opposition  between  the  two  classes.  In  economic  life,  as  we 
know  it,  if  efficiency  is  not  affected  by  changes  in  wages,  capi- 
talists' interests  are  promoted  by  lowering  wages;  but,  under 
the  simple  conditions  which  von  Thunen  supposes,  this  does 
not  follow.  As  will  be  more  clearly  seen  later  on,  the  follow- 
ing question  is  to  the  point :  what  rate  of  wages  can  capitalists 
pay  and  draw  the  highest  rate  of  interest,  supposing  the  effi- 
ciency is  not  considered,  and  that  capitalists  were  to  have  the 
same  rate  of  wages  when  they  were  producing  capital?  To 
show  what  he  means  by  this  question,  and  also  as  an  aid  in  the 
solution  of  the  same,  it  will  be  necessary  to  recur  once  more 
to  his  use  of  mathematical  symbols,  n  represents  the  number 
of  labor  families  whose  continuous  labor  is  required  to  culti- 
vate the  farm  after  its  preparation,  nq  represents  the  number 
of  laborers  in  Group  I.  In  this  expression  is  included  the  co- 
operation of  capital.2  A  laborer  employed  with  q  capital  pro- 
duces p,  and  the  product  of  n  laborers  equals  np.  Group  I 
has  in  the  course  of  the  year  consumed  anq  bushels  of  rye. 

1  Der  holirte  Staat,  ii,  p.  151.  »  Ibid.,  ii,  p.  152. 


^8  GERMAN  WAGE  THEORIES  [374 

Since  Group  II  devotes  its  surplus  to  the  support  of  Group  I 
there  are  as  many  laborers  in  Group  II  as  the  number  of 
times  that/,  the  surplus  of  each  man,  is  contained  in  anq,  the 

amount  consumed,  hence  the   expression    —  -.     The   whole 

y 

number  of  "  capital  producing  laborers  "  then  is  nq  +  a—— 
nq  -  —  ,  The  entire  wage  expense  for  farm  cultivation  is 

y 

n(a  +  y).  If  we  subtract  this  outlay  from  the  total  product  np 
we  have  np  —  n(a+y)  =  n(p—[a  +7]).  It  is  the  yearly  pro- 


duct of  the  farm,  which  belongs  to  nq  -  —  and  is  their  profit, 

or  interest  on  the  capital  invested.     To  find  each  man's  share 
we  only  need  to  divide  the  farm  profit  by  the  number  of 

TU      c         n(P~\a+y\)      n(p  —  [a+y\}y          , 
owners.       Therefore  —  ^-  —  t  -  £*'  =  —^-  —  ,L  ,   V1      equals 

a+y  nq(a-ry) 

nq  -  £ 

y 

each  man's  share. 

The  question  next  occurs:  how  is  the  share  of  each  "  capital- 
producing  laborer  "  affected  by  changes  in  the  rate  of  wages  ? 
It  is  here  assumed  that  the  requirements  of  life,  "a"  remain 
the  same,  and  that  any  change  in  wages  affects/,  the  surplus 
only.  It  will  be  seen  '  that  changes  in  y  result  in  contrary 
effects  upon  each  capital  producer's  share.  First,  an  increase 
or  decrease  of/  is  equivalent  to  an  increase  or  decrease  in  the 
cost  of  the  cultivation  of  the  farm.  So  far  an  increase  of  y 
works  to  the  detriment  of  each  man's  share,  and  a  decrease  of 
y  works  in  favor  of  each  man's  share.  Second,  on  the  other 
hand,  an  inspection  of  the  expression  for  Group  I  reveals  the 
fact  that  an  increase  of/  results  in  a  decrease  of  the  number  of 
owners,  with  a  resulting  increase  in  each  man's  share.  The 
decrease  of  /  gives  a  contrary  result.  Hence  changes  in  y 
work  double  and  opposite  results.  It  follows  that  there  must 
1  See  table  below,  p.  79. 


375] 


VON  THUNEN 


79 


be  a  fixed  amount  for  the  labor  surplus  at  which  the  profit 
share  reaches  its  maximum  amount.  Von  Thunen  shows  by 
means  of  the  following  table  how — the  product  300  c  being 
unaffected,  the  wages  increasing — the  profit  share  is  affected, 
supposing  the  number  of  laborers  to  remain  a  constant: 


Where 

«=IOO, 

a+y 
equals 

Capital  in 
Group  II 
reduced  to 
labor. 
^=12  y'rs  1. 

Capital  in 
Group  1  reduced 
to  labor. 

Sum  of  labor 
in  Groups 
I  and  II. 
9  (a  +  y) 

Interest  on 
farm 
investment. 
p—  (a+y) 

A  single  capitalist 
receives 
/-[a+jy]  y 

y 

y 

9  (a+y) 

120  c 

12 

IOO  X  12 

12(100+20) 

3000  —  120  c= 

3OO  C  [lOO  +  2o]2O 

20 

20 

12(100  +  20) 

72 

i8oc 

150  c 

12 

IOO  X  13 

36 

150  c 

4.16  c 

So 

IOO  X  12 

80 

37 

IOO  X  12 

2IO  C 

110 

900 

3.91  c 

IOO  X  12 

140 

20.57 

270  c 

12 

100  X  12              . 

19.06 

3°c 

1.57  c 

I70 

IOO  X  12 

300  c 

12 

2OO 

It  is  seen  that  the  total  number  of  "capital  producing 
laborers  "  decreases  with  the  increase  of  y  because  a  smaller 
number  of  Group  II  is  required  to  support  Group  I.  We  see, 
too,  that  total  farm  profit  decreases  because  the  more  the 
laborers  take  from  a  constant  product,  the  less  is  the  remain- 
der. The  profit  share  of  each  man  increases  for  a  time,  but 
later  diminishes  till  finally  the  farm  laborers  get  all  that  is 
produced.  This  gives  the  conclusion  again  that  there  must  be 
a  point  in  the  amount  of  wages  where  the  profit  share  is  the 
highest.  The  specific  question  is  :  what  value  shall  y  have  in 

have  its  maxj- 


order  that  the  profit  share 

mum  value?     This  is  a  question  for  the  calculus.     Accord- 


GERMAN  WAGE  THEORIES  [376 

—  —       .  must  be  differentiated  with  respect  to  y 

q(a+y] 

and  the  differentiation  placed  equal  to  o. 


=q  (a  +  y]  (p  —  a  —  2y)  dy  —  (py  —  ay  —  /*)  qdy  -•  o 

therefore  (a  +y)  (p  —  a—  2y)  =  py  —  ay  —y1 

ap  —  a?  —  2ay  +  py  —  ay  —  2yl  =  py  —  ay  —y1 

ap  —  a*  —  2ay  —  2yi  =  —y* 

2ay  =  ap  —  a2 


=  V  ap 

Expressed  in  words  this  means  that  it  is  in  the  interest  of 
capitalists  that  wages  be  equal  to  the  square  root  of  the  prod- 
uct of  the  necessaries  of  life  and  the  product  result  of  labor,  all 
expressed  in  some  common  measure.  Such  a  wage,  not 
determined  by  supply  and  demand,  or  springing  from  the 
necessities  of  the  laborer,  but  from  the  free  determination  of 
the  laborer,  von  Thunen  calls  natural  wages.1 

This  discussion,  so  far,  aims  to  show  that  it  is  in  the  interest 
of  the  "  capital  producing  laborers"  that  wages  be  Vap.  If  it 
can  be  shown  that  laborers  themselves  receive  the  highest 
amount  as  interest  upon  the  investment  of  their  surplus  when 
wages  are  V  ap,  the  claim  that  it  is  the  natural  wage  has  some 
reinforcement.  He  proceeds  to  show  this  in  the  following 
manner  :  According  to  a  former  expression  (see  p.  76)  (i  +  qz) 

(a-\-y]=p  whence  a+y  —  —  p-  —  .and  y—.  —  ±-  --  a.     Were 

l+q*  I  +  qz 

a  workman  to  loan  at  interest  his  surplus  y,  or  its  equivalent 

—\  --  a,   his   total    return    would   amount   to   —  f-  --  az. 
I  +  qz  \-\-qz 

Now  what  rate  of  interest  will  make  this  amount  the  largest  ? 

1  Der  Isolirtc  S/aat,  ii,  p.  157. 


377]  VON  THUNEN  8 1 

The  differential  calculus  yields  for  z  the  value  — — —   .     If 

ap 

P 
we  substitute  this  value  of  z  in  the  equation  a+  y  =      ,        » 

I  "T"  y& 

P 

we  have  a  +y  =  -= ap  — 

v  ap  —  a  =  .—      -  =  V  ap.      Hence 

i  H —         a  +  V  ap  —  a          r 

aq 

it  appears  that  when  a  laborer  receives  V ' ap  wages  he  receives 
the  highest  return  on  his  surplus  invested,  and  his  interest 
coincides  with  that  of  the  "  capital  producing  laborers  "  when 
wages  are  at  that  figure.1 

The  critics  of  von  Thiinen  may  be  roughly  divided  into  two 
-classes.  First,  those  who  deny  the  validity  of  the  formula 
because  of  the  unreality  of  the  assumptions  upon  which  it  is 
based.  Secondly,  those  who  impeach  the  consistency  of  his 
mathematical  reasoning.  The  second  class  is  more  worthy  of 
attention,  because  a  mathematical  criticism  requires  a  pro- 
founder  study  and  clearer  understanding  of  the  author. 

Roscher  thinks  that  we  cannot  place  so  high  a  value  upon 
the  law  as  von  Thiinen  does,  for  it  could  hold  only  where  the 
severe  struggle  between  capital  and  labor  does  not  exist.  In 
young  agricultural  colonies,  where  fruitful  soil  exists  in  super- 
fluity, where  every  laborer  can  save  a  surplus,  where  there  are 
no  capitalists  in  the  narrow  sense,  and  all  the  laborers  are 
nearly  alike,  and,  furthermore,  colonies  where  perhaps  no  in- 
dustry exists  that  requires  large  capital  or  superior  labor, 
there  a  wage  of  V ' ap  might  be  natural.*  Schaffle  takes  a 
similar  position  when  he  says  that  the  law  is  valid  only  for  a 
hypothetical  economy.  It  presupposes  an  unchanging  tech- 
nique, a  mere  replacement  of  the  number  of  laborers,  a  constant 
price  for  grain,  and  other  fictions  which  suppose  variable 
-amounts  for  constant.  Especially  does  he  regard  the  hypothe- 

1  Der  holirte  Staat,  ii,  p.  160. 

*Geschichte  der  Nationalokonomik  in  Deutschland,  p.  896. 


82  GERMAN  WAGE   THEORIES  [378 

sis  of  a  constant  number  of  laborers  as  in  reality  no  basis  for 
natural  wages.1  Likewise  Lehr  objects  that  in  the  formula  the 
number  of  laborers  who  compete  with  each  other  and  press 
down  wages  plays  no  part.  But  (/)  the  product  will  be 
affected  by  the  number  of  laborers.  With  a  growing  popula- 
tion the  amount  of  land  not  yet  occupied  becomes  continually 
smaller  and  less  productive.  Under  a  given  condition  of 
technique,  the  transference  to  more  intensive  operations  yields 
to  the  last  laborer  less  and  less.  The  more/  approaches  a  in 
amount,  the  more  does  the  formula  lose  its  significance.  If 
p  =  a,  then  the  laborer  can  lay  up  nothing. 

Objections  as  given  above  are  shared  by  many  other  writers, 
as  Leymarie,  Mangoldt  and  Mithoff.  Dr.  Joh.  von  Komor- 
zinski '  has  more  recently  and  in  greater  detail  pointed  out  one 
of  von  Thiinen's  limited  assumptions  which  is  worth  noting  by 
itself.  Von  Thunen  had  argued  that  it  was  for  the  interest  of 
the  laborer  that  his  wages  should  be  at  such  a  point  that  the 
interest  upon  the  investment  of  his  surplus  be  as  high  as 
possible.  This  Komorzinski  clearly  points  out  would  not  be 
true  for  all  laborers.  The  laborer  has  two  sources  of  income: 
wages,  and  interest  on  savings.  He  desires  that  with  a  given 
effort  the  total  income  be  as  large  as  possible.  The  relative 
importance  to  the  laborer  of  wages  and  interest  on  savings  de- 
pends upon  the  quantitative  relation  which  each  has  to  the 
whole  income.  A  laborer  who  is  just  beginning  to  save  de- 
sires that  his  wage  be  as  high  as  possible.  The  rate  of  interest 
upon  his  small  investment  is  a  relatively  unimportant  matter 
to  him  ;  while  the  laborer  who  has  saved  much  during  a  long 
period  may  regard  the  amount  of  his  wage  as  a  matter  of  com- 
parative indifference.  His  chief  source  of  income  being  interest 
upon  invested  surplus,  he  is  led  to  desire  a  maximum  rate.  If 

lDas  Gesellschaftliche  System  der  Menschlichen   Wirthschaft,  1873,  p.  440. 

^Zeitschrift  iir  Volksiuirthschaft,  Socialpolitik  und  Ver-waltung,  B.  iii,  Heft 
i,  p.  27-62. 


379]  VON  THUNEN  83 

von  Thiinen's  argument  is  to  be  valid,  laborers  must  have 
saved  an  equal  length  of  time  and  an  equal  amount. 

These  objections  are  for  the  most  part  only  repetitions  of  von 
Thiinen's  stated  assumptions,  and  we  cannot  suppose  that  he 
is  taken  unawares.  Ricardo  assumes  for  the  economic  world 
at  large  conditions  which  were  familiar  to  him  on  the  stock 
exchange,  and  upon  these  he  developed  principles  of  rent  that 
might  have  been  more  accurately  developed  if  he  had  been 
more  familiar  with  farm  economy.  Subsequent  thinkers  have 
had  to  make  the  necessary  corrections.  Ricardo's  assumptions 
were  not  so  violent  as  to  belie  his  observations,  for  he  really 
thought  his  assumptions,  in  general,  were  true.  This  cannot 
be  said  of  von  Thiinen.  He  did  not  attempt  to  develop  princi- 
ples of  banking  investment  based  upon  farming  experience. 
Had  Ricardo  written  on  the  exchange  he  would  have  traversed 
paths  familiar  to  him.  When  von  Thiinen  wrote  on  farming  he 
wrote  accurately.  He  was  a  practical  farmer,  as  well  as  a 
scientific  thinker.  The  world  of  his  assumptions  and  that  of 
reality  are  too  far  removed  from  each  other  for  us  to  suppose 
him  ignorant  of  the  radical  difference  between  them.  He  is  con- 
stantly drawing  contrasts  between  reality  and  the  isolated 
state.  He  has  a  different  law  of  wages  and  of  interest  for  each. 

How  shall  we  explain  his  confidence  in  a  law  based  upon 
conditions  so  far  removed  from  the  real  world  and  so  lacking 
in  completeness  ?  Only  on  the  assumption  that  he  regarded 
present  conditions  as  unnatural,  and  the  wage  of  the  present 
order  as  an  unnatural  wage.  He  said  that  the  present  regime 
was  likely  to  result  in  the  starvation  and  misery  of  the  labor- 
ing classes.  The  present  system  must  therefore  lack  equity. 
He  professed  to  have  investigated  the  relation  of  wages  and 
interest  from  several  standpoints,  and  to  have  found  that,  when 
wages  were  at  V ap,  they  agreed  with  the  nature  of  man,  and 
of  the  physical  world.1  He  regarded  his  formula  as  a  foot- 

1  Der  holirte  Staat,  ii,  p.  206. 


84  GERMAN  WAGE  THEORIES  [380 

rule  by  which  to  judge  whether  a  wage  were  at  once  natural 
and  righteous.  It  was,  therefore,  to  express  a  condition  that 
in  his  opinion  ought  to  exist,  a  goal  which  laborers  ought  to 
strive  for,  and  one  that  employers  and  society  should  help 
labor  to  reach. 

We  cannot  but  admire  the  spirit  of  von  Thiinen,  who,  in 
mediating  between  the  extremes  of  the  adherents  of  the  "  iron 
law  "  and  those  of  the  socialists,  endeavored  to  lay  a  scientific 
foundation  for  the  elevation  of  mankind.  That  he  does  medi- 
ate is  shown  by  an  inspection  of  the  formula.  If/  were  equal 
to  a,  then,  according  to  the  equation,  wages  would  equal  the 
necessaries  of  life,  and  wages  would  absorb  the  entire  product. 

But  with  von  Thiinen,  p  is  always  greater  than  a  +y.  Wages 
then  would  be  above  the  necessaries,  but  below  the  total  pro- 
duct. Most  men  regard  this  as  just.  Our  admiration  of 
his  spirit,  however,  must  not  blind  us  to  the  faults  of  his  work. 
A  man  may  love  his  neighbor,  and  may  give  him  a  formula  by 
the  realization  of  which  in  life,  he  may  be  landed  in  a  state  of 
comfort  and  right  economic  relations  with  his  fellows.  But  if 
that  formula  can  be  realized  only  in  a  state  of  society  far  re- 
moved in  nature  from  the  present,  and  if  that  state,  in  addition, 
is  so  primitive  and  simple  as  to  preclude  the  social  complexi- 
ties of  modern  life,  the  author  of  the  formula  may  not  com- 
plain if  he  is  rejected  as  an  unsafe  and  impractical  social  guide. 
Such  is  the  position  to  which  von  Thiinen  is  reduced  by  this 
method  of  criticism. 

The  second  method  of  criticism  is  quite  as  important  in  re- 
sults, assuming  the  points  well  taken,  because  it  discredits  the 
mathematical  reasoning  by  which  the  formula  is  evolved. 
The  method  of  procedure  is  to  show  that  von  Thiinen  treated 
as  constant  or  known  some  quantity  which  in  reality  is  vari- 
able or  unknown.  Among  the  first  to  do  this  was  Falck.1 

1  Falck,  Die  Thiinensche  Lehre  vom  Bildungsgesetz  des  Zinfussts  und  vont 
naturgemdssen  Arbeitjohn. 


381]  VON  THUNEN  85 


He  says  "  the  formula  t£  —  ;  was  obtained  from  the 


n\_p-(a+y}~\ 
formula       nq  (a  +  y)      .     The   numerator   denotes    the   rent 

y 

from  the  farm,  the  denominator  the  number  of  those  among 
whom  the  rent  is  divided.  But  is  the  y  of  the  denominator 
really  equivalent  to  the  y  of  the  numerator  ?  The  y  of  the 
numerator  denotes  the  surplus  that  is  paid  to  the  laborer  at 
this  particular  time  ;  but  the  y  of  the  denominator  denotes  the 
surplus  of  wages  that  existed  before  the  laying  out  of  the  farm. 
Only  by  placing  the  two  j's  equal  to  each  other  has  it  been 
possible  for  the  rent  (or  interest)  to  obtain  a  maximum  value 
at  a  definite  rate  of  wages."1  This  would  be  a  just  criticism  if 
it  were  conceived  that  von  Thiinen  was  dealing  with  two  widely 
different  economic  regimes  at  the  same  time.  But  a  sympa- 
thetic study  of  von  Thiinen  makes  it  fairly  clear  that  he  regarded 
the  economic  conditions  under  which  both  Group  I  and  II 
worked  as  identical.  He  assumed  that  natural  wages  already 
existed  in  the  isolated  state  ;  and  as  a  means  of  discovering 
the  mathematical  expression  for  such  wages,  he  supposed  that 
a  number  of  laborers,  to  whom  it  is  a  matter  of  indifference 
whether  they  labor  for  wages  or  cultivate  a  marginal  farm  on 
their  own  account,  combined  to  lay  out  a  farm.2  If  the  social 
arrangements  are  the  same  in  both  cases  ;  if  the  society  is  sta- 
tionary, as  the  isolated  state  was  conceived  to  be  ;  if  men  were 
equal  in  skill  and  the  standards  of  life  were  the  same  among 
them  all,  then  the  necessaries  or  life  subtracted  from  an  equal 
wage  would  have  equal  surplus,  and  the  y's  would  be  equal. 
Thus  Falck's  objection  falls  to  the  ground. 

Komorzynski  in  the  article  referred  to  above  also  attacks 

1  Quoted  by  H.  L.  Moore  in  his    Von   Thunen's  Theory  of  Natural   Wages. 
See  Quarterly  Journal  of  Economics,  v.  9,  p.  389. 

1  Q-  7-  of  Econ.,  v.  9,  p.  391. 


86  GERMAN  WAGE  THEORIES  [382 

the  formula,  but  in  a  somewhat  different  way.  He  inquires 
whether  a  general  relation  between  the  rate  of  interest  z  and 
wage  surplus  y  exists  which  finds  its  proper  expression  in 

p  —  (a  +  v) 

z  =*-  —  rX  -  ^-.     He  defines  p  as  the  exchange  value  of  the 
q(a+y) 

product  after  the  deduction  of  all  outlays  except  wages  and 
interest  on  capital,  q  (a  +jj/)  expresses  the  value  of  the  capital 
invested,  q—  the  number  of  year's  wages  which  equals  the 
value  of  the  capital.  The  question  now  relates  to  the  pro- 
priety of  treating  /  as  constant,  and  of  valuing  capital  in  the 
manner  indicated.  That/  should  not  be  treated  as  a  constant 
must  be  evident,  says  Kornorzynski,  from  the  fact  that  p  is  a  dif- 
ferent quantity  in  every  different  process  of  production.  More- 
over, it  is  straining  matters  to  suppose  /  the  same  when  great 
changes  may  occur  in  wages  and  interest.  Likewise  the  value 
of  the  capital,  a  complex  of  goods,  is  treated  as  constant,  al- 
though the  formula  for  wages,  a  changeable  factor,  is  used  to  ex- 
press its  value.  It  is  difficult  to  regard  capital  as  having  a  static 
value  when  it  is  itself  a  dynamic  entity.  The  goods  of  capital 
become  in  turn  products,  and  other  goods  take  their  place,  yet 
the  value  is  conceived  as  the  same.  Products  of  one  process 
find  application  as  capital  in  some  other  production  process,  in 
all  of  which  cases  von  Thiinen  conceives  the  value  of  capital  as 
dependent  upon  the  rate  of  wages.  Von  Thiinen  does  not  seem 
to  have  applied  a  consistent  theory  of  price  determination.  It 
follows  that,  if  p  and  q  (a  -\-y)  vary  by  no  known  law  with 

every   different   process  of  production,  *  =  -  —  ~~.  —  ^-  cannot 

9  (a 


express  a  constant  relation  between  interest  and  surplus  in  all 
industries.  It  is  unsuited  to  express  a  general  relation,  how- 
ever well  it  may  represent  the  relation  between  wages  and  in- 
terest in  specific  industries. 

Komorzynski  errs  in  two  particulars  :  first,  in  not  remember- 
ing the  static  conditions  of  the  isolated  state;  secondly,  in  dis- 
regarding the  author's  definition  of  p.  Von  Thiinen  nowhere 


383]  VON  THUNEN  87 

has  /  represent  value.  If  he  speaks  of  mining,/  stands  for  so 
many  pounds  of  silver;  if  of  agriculture,  then  so  many  bushels 
of  rye.  It  will  be  seen  that  this  error  vitiates  the  argument  of 
the  example  upon  which  he  relies  to  prove  his  position.  He 
says,  "  If  the  rate  of  interest  is  5  per  cent,  and  the  rate  of  wages 
400  florins,  then,  in  three  different  forms  of  production,  these 
equations  may  exist: 

.«  T      5  25°°  ~~  4°°      t. 

I.  -*—  =  — — ,  where  p  —  2,500  and  q  —  105. 

loo          105  x  400 

«  TT      5  1200  —  400      , 

II.  ~-= — ,  where/  =  1,200  and  q  =  40. 

100  40  x  400 

«  in.  J 460  ~  400  where/  =    ^  and 

100          3  x  400 

"  But  if  (a  +  y)  should  rise  from  400  to  450  florins,  then  the 
following  unequal  rates  of  interest  would  result : 

4<I    4-33  _.    2500-450 
ioo  "      105  x  450 
4.16        1200  —  450 


"II. 
"III. 


ioo    40  x  450 
.741   460  -  450  „ , 


ioo    3  x  450 

If  /  represents  not  value  but  product  in  kind,  there  is  no 
necessity  of  assuming  that  /  remains  constant  when  the  rate 
of  wages  changes.  Why  may  not  /  change  in  quantity  so  that 
the  value  of  the  product  may  so  adjust  itself  as  to  counteract 
the  disturbance  of  a  change  in  wages  ?  In  which  case  the  rate 
of  interest  would  remain  the  same.'"1 

The  only  remaining  criticism  of  von  Thiinen  which  will  be 
noticed  here  is  that  by  Professor  H.  L.  Moore  in  the  articles 
referred  to  above.3  Says  Moore,  "  Thiinen's  purpose  in  the 

1  Quoted  by  Moore,  see  Quarterly  J.  of  Econ.,  v.  9,  p.  398. 
9  Quarterly  Journal  of  Economics,  v.  9,  p.  399. 
8  Ibid.,  April  and  July,  1895. 


88  GERMAN  WAGE  THEORIES  [384 

whole  work  is  to  find  mathematical  expressions  for  the  natural 
rate  of  interest  and  the  natural  rate  of  wages.  The  method  by 
which  he  does  this  is  first  to  find  a  formula  expressing  the 
interdependence  of  wages  and  interest  in  the  isolated  state. 

The   formula,  z^    /*.    "f  ,  we  shall  call  formula  A.     In 
q(a+y] 

this  formula  all  the  quantities  are  known  except  y  and  z.  In 
order  to  find  the  values  oiy  and  z,  he  next  attempts  to  find  an 
independent  expression  tor  y  or  what  is  the  same  thing,  since  a  is 
known,  an  independent  expression  for  (a  +  j);  and  by  substitut- 
ing for  (a  +  y)  in  formula  A  obtain  the  value  of  z.  The  form- 
ula which  enables  him  to  find  the  independent  expression  for 

«!>-(*+.?)] 

(a  +  y)  is       nq  (a+y)      .     In  this  formula,  which  we  shall  call 

y 

formula  B,  all  the  quantities  are  assumed  as  known  excepting  j>>. 
But  how  did  von  Thiinen  obtain  the  quantity  nq?  He  (von 
Thiinen)  says :  Suppose  '  the  laying  out  of  the  farm  required  the 
year's  labor  of  nq  men  ....  Unquestionably  in  order  to  provide 
a  new  farm  is  needed  not  only  labor,  but  also  the  use  of  capital; 
(but)  according  to  §  13,  we  can  reduce  the  co-operation  of  cap- 
ital to  terms  of  labor,  and  thus  express  the  costs  of  laying  out 
the  farm  entirely  in  terms  of  labor"  When  we  refer  to  §  13  to 
see  how  the  reduction  is  to  be  performed,  we  find  that  it  is  done 
by  means  of  the  rate  of  interest.  The  fallacy  in  the  argument 
is  evident.  Thiinen's  whole  procedure  is  a  mere  begging  of  the 
question.  His  problem  is  to  find  the  values  of  y  and  z  in  the 
formula  A  ;  and,  to  solve  the  problem,  he  undertakes  to  find  an 
independent  expression  for  (a  +  y]  by  means  of  formula  B,  and 
by  substituting  for  (a  +y]  in  formula  A  obtain  the  value  of  z. 
But,  in  order  to  get  the  quantity  nq  in  formula  B,  he  assumes 
that  z  is  known.  If,  however,  z  is  known,  then,  according  to 
formula  A,  y  is  known.  Thiinen  undertakes  to  find  the  value 
of  the  unknown  quantities  y  and  z\  and,  in  attempting  to  solve 
the  problem,  he  uses  the  very  quantities  that  he  wants  to  find 


385]  VON  THUNEN  89 

as  known  quantities."1  This  expresses  in  the  clearest  possible 
manner  Prof.  Moore's  position.  It  is  a  position  which  appears 
unassailable.  I  can  discover  no  flaw  in  his  argument ;  his  study 
of  von  Thiinen  has  evidently  been  thorough  and  candid.  Of 
von  Thiinen's  critics  and  commentators  he  seems  to  me  to  be 
the  best  informed  on  the  author's  fundamental  ideas.  He  was 
the  first  adequately  to  grasp  the  true  limitations  of  the  isolated 
state ;  to  note  the  true  difference  between  the  dynamic  and  static 
conditions  of  von  Thiinen's  problem.  A  proper  emphasis  on 
the  last  mentioned  point  has  enabled  Prof.  Moore  successfully 
to  defend  von  Thiinen  against  those  who  have  not  adequately 
comprehended  him.  This  same  insight  has  enabled  Prof. 
Moore  to  hit  upon  the  real  weakness  of  von  Thiinen's  work, 
and  to  show  that,  after  all  the  laborious  work  on  the  isolated 
state,  the  conclusion  is  worthless. 

In  two  particulars,  then,  we  find  von  Thiinen's  formula  for 
wages  unsatisfactory  :  First,  assuming  the  conditions  of  the 
isolated  state  as  admissible,  the  formula  is  not  obtained  by  a 
proper  method.  Secondly,  if  the  formula  were  properly  ob- 
tained, it  would  be  useless  on  account  of  the  extreme  limita- 
tions of  the  isolated  state  upon  which  the  formula  is  based. 

If  the  results  based  upon  the  isolated  state  may  not  be 
accepted,  and  it  is  found  necessary  to  set  aside  that  part  of  the 
discussion  which  relates  to  wages  as  of  slight  value,  it  will  not 
be  denied  that  there  are  some  things  of  real  interest  in  his  treat- 
ment based  upon  the  objective  economic  world.  By  many  years 
von  Thiinen  anticipitated  a  theory  of  prevailing  wages*  that 
was  independently  developed  and  made  known  to  the  world 
by  Professor  J.  B.  Clark — a  theory  which  is  quietly  finding  its 
way  into  the  pages  of  economic  works,  and  becoming  a  sort  of 
common  property  with  almost  no  knowledge  or  acknowledg- 
ment of  its  source.  As  will  be  seen,  however,  von  Thiinen 
found  slight  comfort  in  the  theory  for  the  future  of  the  race. 

1  Q'  7-  °f  E>i  v.  9,  p.  405.  *Der  Isolirte  Staat,  ii,  p.  178-193. 


00  GERMAN  WAGE  THEORIES  [386 

He  pointed  out  that  an  undertaker  will  not  employ  additional 
laborers  unless  they  earn  for  him  at  least  as  much  as  he  pays 
them.  If  the  point  of  equivalence  between  return  and  wage- 
payment  has  been  reached,  then  a  rise  of  wages  with  a  station- 
ary value  of  product  (i.  e.,  output  of  laborers)  brings  about  a 
decrease  of  laborers  employed,  and,  as  a  result,  a  decreased 
output.  Further,  an  increase  of  value  of  product  with  station- 
ary wages  yields  the  opposite  result,  viz.,  additionally  employed 
labor  with  an  increased  output.  Since  it  lies  in  the  interest  of 
the  undertaker  to  increase  the  number  of  his  laborers  so  long 
as  by  their  employment  a  net  advantage  accrues  to  him,  the 
limit  of  that  increase  is  reached  when  the  output  of  the  last 
laborer  employed  is  entirely  absorbed  by  his  wages.  The 
wages,  then,  of  the  last  laborer  employed  must  about  equal  his 
output.  But  these  wages  are  normal  for  all  laborers  of  like 
skill,  because  for  like  service  unequal  wages  cannot  be  paid. 
Employing  the  term  "  marginal "  for  "  last  employed,"  we 
reach  the  following  law :  wages  are  determined  by  the  product 
of  marginal  laborers. 

Von  Thiinen  did  not  discuss  this  doctrine  in  detail.  Much 
was  left  to  the  easy  acquiescence  or  imagination  of  the  reader. 
For  instance,  one  feels  the  lack  of  scientific  explanation  of  the 
true  significance  of  marginal  employment.  That  von  Thiinen 
himself  recognized  the  wide  field  of  resort  for  the  unemployed  in 
the  marginal  uses  of  capital  can  scarcely  be  doubted,  other- 
wise he  could  not  have  assigned  so  important  an  agency  to  it. 
That  the  theory  attracted  almost  no  attention  among  thinkers, 
who  must  be  supposed  to  have  read  the  work,  may  be  attrib- 
uted to  its  fragmentary  treatment.  As  it  stands  in  von  Thunen's 
pages  the  theory  is  a  digression.  Von  Thiinen  laid  comparatively 
no  emphasis  upon  the  matter,  because  he  was  not  primarily 
interested  in  the  statement  of  the  law  of  present  wages.  He 
was  far  more  concerned  with  the  discovery  of  a  law  of  distribu- 
tion, the  realization  of  which  should  secure  to  the  laboring 
class  wages  adequate  to  a  reasonably  high  level  of  life.  He 


387]  VON  THUNEN  gi 

was  convinced  that  the  present  system  did  not  do  this.  It  was 
not  enough  for  him  if  the  wages  received  were  equal  to  amount 
produced.  More  important  was  the  inquiry:  Are  laborers 
secure  from  misery  and  want  ? 

After  stating  the  above  theory  of  wages,  he  proceeds  by 
means  of  the  theory  to  correct  some  misapprehensions  in  re- 
gard to  the  labor  problem.  The  socialists  deny  that  one  man, 
whatever  his  skill  may  be,  should  receive  as  much,  or  more, 
for  an  hour's  work  as  another  man  receives  for  twelve  hours. 
But,  says  von  Thiinen,  it  is  idle  to  complain  of  an  undertaker 
who  pays  his  superintendent  a  superior  reward.  He  pays  it 
simply  because  the  overseer's  product  at  least  equals  his  wages. 
The  socialists'  scheme  of  using  labor  time  as  a  measure  of  wages 
is  a  dream.  The  misery  of  the  laboring  class  cannot  be  laid  to 
the  fault  of  the  "  entrepreneurs,"  for  they  cannot  pay  more  to 
labor  than  labor  is  worth  to  them.  If  some  one  objects  that 
the  earlier  employed  laborers  produce  more  than  they  receive, 
and  that  thus  the  conductor  of  industry  has  a  surplus  at  his 
disposal  for  higher  payments  which,  if  he  withholds,  makes 
him  responsible  for  the  laborers'  lot,  it  is  to  be  said  that  such 
an  objection  shows  a  confusion  of  moral  and  business  princi- 
ples. If  one  undertaker  alone  did  what  is  here  suggested  he 
would  be  driven  out  of  business  by  his  competitors ;  and,  if  a 
nation  did  this,  it  would  suffer  by  foreign  competition.  It  may 
be  laid  down  as  an  absolute  principle  that  no  laborers  should 
be  employed  whose  output  does  not  cover  the  cost  of  their 
employment,  otherwise  the  wealth  of  society,  which  ought  to 
be  increased  by  the  labor  force  of  a  nation,  would  be  by  it  di- 
minished. No,  the  misery  of  the  laboring  class  may  not  be 
remedied  by  an  appeal  to  the  sense  of  duty  of  the  rich,  but 
rnust  be  met  in  some  other  way. 

Von  Thiinen  proceeds  to  show  by  means  of  this  law  of  wages 
that  under  the  present  system  the  fate  of  the  laboring  class 
may  be  a  melancholy  one.  There  seems  to  be  no  escape  from 
the  main  conclusions  of  the  theory.  If  we  suppose  wages  to 


92  GERMAN  WAGE  THEORIES  [388 

increase,  without  a  decrease  in  the  number  of  laborers,  the 
last  laborers  employed  do  not  earn  their  wages.  Employers 
will  then  discharge  men  till  the  last  one  retained  earns  what  is 
paid  to  him.  Thereby  many  laborers  are  made  idle,  and 
rather  than  starve  they  will  be  willing  to  work  for  the  old  rate. 
Hence  under  these  circumstances  no  rise  of  wages  can  occur. 
If,  on  the  other  hand,  the  laboring  population  should  increase, 
while  capital  and  land  remain  constant  in  amount,  then  the 
new  laborers  can  find  no  employment  at  the  present  rates. 
This  is  plain  from  the  fact  that,  since  this  wage  already  absorbs 
the  entire  product  of  the  marginal  laborers  and  every  addi- 
tionally employed  laborer  produces  less  than  the  one  previously 
employed,  the  hiring  of  the  new  laborers  at  the  present  rate 
involves  a  loss  to  the  undertaker.  It  follows  that  the  new 
laborers  can  find  employment  only  at  a  lower  rate.  If  addi- 
tional population  makes  necessary  the  employment  of  labor 
upon  less  and  less  productive  objects,  wages  must  continue  to 
fall  till  the  limit  of  subsistence  is  reached.  The  increase  of 
population  under  these  circumstances,  bringing  its  attendant 
evils,  seems,  however,  to  von  Thiinen  a  certainty.  But  the  evil, 
he  thinks,  will  not  fall  upon  all  indiscriminately.  He  holds  to 
the  doctrine  of  the  salvation  and  survival  of  the  fittest.  By 
constitution  men  differ  in  soundness  and  skill.  By  reason  of 
life's  changes  men's  industrial  fitness  differs  with  age.  Hence 
if  there  is  a  surplus  of  population,  only  the  healthy,  the  most 
skillful,  the  most  efficient  and  those  in  the  prime  of  life  will  be 
retained.  The  old,  the  decrepit,  the  weak,  the  inefficient  will 
be  industrially  left  behind.  We  may  thus  approach  conditions 
in  which  the  only  relief  from  actual  suffering  is  an  appeal  to 
charity  funds.  Reckless  increase  of  population  is  an  evil  from 
which  even  good  harvests  may  not  rescue  us.  Von  Thiinen  is 
haunted  by  the  suggestion  that  prosperity  (economically)  gives 
well-being,  well-being  overpopulation,  and  over-population 
misery;  and  he  asks  whether  there  is  no  escape  from  this 
vicious  circle.  Has  Providence  designed  that  as  the  earth  be- 


389]  VON  THUNEN  93 

comes  inhabited,  the  future  should  become  darkened  by  the 
vision  of  increasing  misery?  He  thinks  there  must  be  an 
escape.  Providence  is  not  so  cruel ;  but  clearly  to  define  the 
conditions  whose  fulfilment  will  ensure  happiness  to  men,  is  a 
problem  with  which  he  cannot  attempt  to  deal. 


CHAPTER  V 

THE   SOCIALISTS 

WHAT  is  often  called  the  pessimistic  side  of  Ricardo's  eco- 
nomic ideas,  viz.,  the  side  which  rests  wages  upon  some  neces- 
sary demand  on  the  part  of  laborers,  reached  its  highest  de- 
velopment in  the  socialistic  view  of  wages.  Marx,1  like  Von 
Thiinen,  was  dissatisfied  with  a  simple  appeal  to  supply  and 
demand  as  an  explanation  of  wages.  According  to  him  it  ex- 
plains nothing  but  wage  changes.  "  The  price  of  labor  at  the 
moment  when  supply  and  demand  are  in  equilibrium  is  its 
natural  price  determined  independently  of  the  relation  of 
supply  and  demand,  and  how  this  price  is  determined  is  the 
question  at  issue.2  His  treatment  of  wages  is  a  unit  with  the 
treatment  of  the  value  of  commodities.  "  That  which  deter- 
mines the  magnitude  of  the  value  of  any  article  is  the  amount 
of  labor  socially  necessary  for  its  production."3  The  value  of 
a  commodity  being  determined  initially  by  conditions  of  pro- 
duction, it  is  put  into  the  course  of  trade  or  circulation  in  order 
to  realize  upon  it,  during  the  process  of  exchange,  a  surplus 
value.  Commodity  is  exchanged  for  money,  and  money  for 
commodity,  so  that  with  each  transaction  an  increase  of  value 
or  surplus  is  exacted.  If  it  were  otherwise,  the  exchange 
would  not  take  place.  A  similar  process,  says  Marx,  occurs 
with  respect  to  labor.  To  make  this  point  clear,  a  distinction 
is  made  between  labor-power  and  labor.  By  labor-power,  or 
capacity  for  labor,  is  to  be  understood  the  aggregate  of  those 
mental  and  physical  capabilities  existing  in  the  human  being 

1  The  references  to  Capital  are  to  Sonnenschein's  edition. 
J  Capital,  p  548.  » Ibid.,  p.  6. 

94  [39° 


1] 


THE  SOCIALISTS 


which  are  exercised  whenever  there  is  produced  a  use  value 
of  any  description.1  Labor  is  labor-power  in  use.2  A  laborer 
is  labor-power  in  action.  The  value  of  the  two  may  be,  and 
usually  is,  quite  different.  The  value  of  labor-power  is  the 
price  of  labor  on  the  market,  or  wages.  The  value  of  labor 
is  the  value  of  labor-power  when  it  is  embodied  in  a  product; 
and  that  value  must  be  greater  than  the  former,  as  a  rule,  or 
the  capitalists  would  not  deal  in  labor.  At  one  point  in  the 
discussion,  Marx  sees  that  the  price  of  labor-power  will  be  fixed 
by  the  bargaining  powers  of  each  party  to  the  contract.  He 
also  says  that  the  minimum  limit  of  the  price  of  labor-power  is 
determined  by  the  value  of  the  commodities  for  consumption, 
which  are  required  to  renew  labor  energy  and  to  renew  the 
supply  of  laborers  from  fresh  generations.3  But  in  his  further 
treatment  he  assumes  that  wages  will  not  be  much  above  this 
lowest  limit.  He  does  say  that  if  it  falls  to  this  minimum  it  falls 
below  its  real  value,  for  then  it  would  exist  in  a  crippled  state. 
"  The  value  of  every  commodity  is  determined  by  the  labor 
time  required  to  turn  it  out  so  as  to  be  of  normal  value."4 

The  method  of  converting  the  value  of  labor-power  into 
the  value  of  labor  and  thus  securing  a  surplus  value,  is 
the  kernel  of  Marx'  severe  indictment  against  capitalistic 
production.  Assuming  that  the  product  of  six  hours  of  labor 
almost  covers  the  cost  of  the  maintenance  of  labor,  or 
wages,  the  capitalist  class  is  guilty  of  wrongful  appropriation 
of  all  values  created  in  the  remaining  hours  of  the  working 
day.  This  analysis  of  the  industrial  situation  has  considera- 
ble enforcement  in  Marx'  historical  account  of  movements  to 
secure  a  shorter  legal  working  day.  Such  movements  have 
usually  encountered  the  united  opposition  of  the  employing 
class.  The  inference  is  easy  on  a  superficial  view  ;  it  is  be- 
cause employers  dread  a  curtailment  of  a  surplus  which  they 

1  Capital,  p.  145.  *Ibid.t  p.  156. 

»  Ibid.  ,  p.  1  5  2.  *  Ibid.,  p.  1  5  2. 


96  GERMAN  WAGE  THEORIES  [392 

have  marked  as  their  own.  Marx'  accumulated  mass  of  evi- 
dence from  the  English  Blue  Books  as  to  the  barbarously 
long  hours  of  labor  of  men,  women  and  children,  exacted  in 
the  early  history  of  English  manufacture,  constitutes  some  of 
the  most  tragic  chapters  of  history.  His  account  is  admirably 
calculated  to  enlist  a  lively  sympathy  for  the  innocent  and 
almost  helpless  class  of  wage  earners,  and  at  the  same  time  calls 
forth  deep  resentment  against  the  powerful  capitalists  whom 
we  are  led  to  regard  as  heartless  and  rapacious  to  the  last 
degree.  The  real  point  made  here  by  Marx  is  that,  as  machin- 
ery has  increased  the  efficiency  of  labor  to  the  extent  of  en- 
abling a  worker  to  accomplish  as  much,  say,  in  four  hours  as 
could  formerly  be  done  in  ten,  the  hours  of  labor  in  a  day 
have  not  been  reduced  in  proportion. 

It  must  not  be  lost  sight  of,  however,  that  hours  of  labor 
have  been  materially  shortened  as  society  has  become  ad- 
justed to  machine  and  factory  conditions  of  production. 
Where  the  factory  system  has  developed  most  completely 
the  hours  are  not  so  long  as  to  excite  pity.  The  condition 
of  things  in  this  respect  under  the  domestic  system,  and 
in  the  early  factory  period,  as  well  as  those  where  older 
forms  of  production  still  survive,  is  far  less  favorable  than  in 
the  fully  developed  factory  system.  In  the  second  place, 
physical  productivity  of  capital  may  not  necessarily  be  value 
productivity.  Under  modern  conditions  laborers  cannot,  and 
ordinarily  would  not,  desire  to  be  paid  in  the  commodities  of 
their  own  making.  They  prefer  payment  in  a  universally  ac- 
ceptable commodity  representing  some  proportionate  value  of 
their  product.  The  working  man  is  interested  in  the  value  of 
his  total  product,  not  in  the  number  of  pieces  turned  out.  The 
figures  commonly  employed  to  show  the  enormous  increase 
of  productive  power  by  the  use  of  capital  nearly  always  fix  the 
attention  upon  the  physical  facts  of  the  case,  and  the  result  is 
sufficiently  startling.  But  if  comparison  were  made  only  be- 
tween the  values  of  the  product  with  and  without  machinery, 


393]  THE  SOCIALISTS  gj 

a  different  impression  would  result,  especially  if  account  were 
taken  of  all  the  labor  involved  in  the  production  of  the  capital. 
Those  who  read  the  earlier  portions  of  Capital  and  not  the  later 
are  apt  to  get  erroneous  notions  of  the  amount  of  exploitation 
of  laborers  which  exists  according  to  socialistic  conceptions. 
If  six  hours  of  labor  are  sufficient  to  support  the  worker,  but 
the  employer  forces  him  to  add  four  or  six  hours  more  to  each 
day's  labor  for  the  employer's  special  benefit,  an  injustice  is 
apparent.  But  if  from  the  product  of  the  additional  hours, 
all  capital  which  makes  possible  this  large  production  for  the 
laborer,  must  be  replaced,  and  all  losses  incident  to  capitalistic 
risk  must  be  met,  the  amount  remaining  over  as  a  true  surplus 
value  on  a  priori  grounds  may  not  appear  great.  Marx  does 
not  ignore  replacement  of  capital.  "  Whatever  the  form  of  the 
process  of  production  in  a  society,  it  must  be  a  continuous 
process,  must  continue  to  go  periodically  through  the  same 
phases."  "When  viewed,  therefore,  as  a  connected  whole,  and 
.as  flowing  on  with  incessant  renewal,  every  social  process  of 
production  is,  at  the  same  time,  a  process  of  reproduction." 1 
The  very  condition  of  production  with  the  aid  of  capital, 
whether  the  economic  organization  be  the  so-called  "  capital- 
istic "  or  socialistic,  requires  that  a  large  share  of  the  annual 
income  or  social  dividend  be  reconverted  into  means  of  pro- 
-duction,  or  in  other  words,  that  it  be  devoted  to  the  service  of 
replacement  of  capital  whose  energies  have  been  transmitted 
into  products  of  a  lower  degree,  to  use  Menger's  conception. 
Marx  has  devoted  much  space  to  show  the  process  of  the  flow 
of  products  and  the  conversion  of  a  part  of  this  flow  into  capital. 
And  there  is  much  in  that  part  of  his  work  which  will  repay 
diligent  study. 

However,  Marx  regards  even  the  replacement  of  capital  to 
be  as  much  an  exploitation  as  is  the  personal  consumption 
of  the  capitalist.  If  we  suppose  that  a  capitalist  has  made  an 
investment  of  a  certain  sum,  and  yearly  devotes  enough  of  the 

J  Capital,  1887,  p.  577-8. 


9g  GERMAN  WAGE  THEORIES  [394 

product  to  replace  the  yearly  wear  of  the  capital,  and  consumes 
the  rest,  it  will  be  but  a  few  years  when  he  will  have  consumed 
a  value  equal  to  his  capital.  Now,  the  capitalist  thinks  that  he 
has  consumed  the  product  of  unpaid  labor,  says  Marx,  and 
that  he  has  kept  his  capital  intact.  But  that  is  not  Marx' 
interpretation.  In  fact,  the  capitalist  has  consumed  his  own 
capital,  which  he  may  have  himself  produced,  but  has  appro- 
priated surplus  value  without  payment  to  the  amount  of  his 
original  capital.  Thus  replacement  is  an  exploitation.1 

Of  special  interest  is  Marx'  conception  of  the  relation  be- 
tween wages  and  product,  as  well  as  between  wages  and  capi- 
tal. This  relation  is  first  indicated  by  an  illustration.2  A 
peasant,  who  is  liable  to  do  compulsory  service  for  his  lord, 
works  three  days  for  himself  and  three  on  the  lord's  domain. 
Under  these  circumstances  the  peasant  reproduces  his  own 
labor  fund.  If  the  lord  appropriates  to  himself  the  land  and 
other  means  of  production  of  this  peasant,  the  latter  will  be 
obliged  thenceforth  to  sell  his  labor-power  to  the  lord.  Under 
these  circumstances,  he  continues  to  work  three  days  for  him- 
self, the  time  necessary  to  obtain  his  necessaries,  and  three 
days  for  his  lord.  "As  before,  he  will  use  up  the  means  of 
production,  as  means  of  production,  and  transfer  their  value  to 
the  product.  In  the  same  way,  a  definite  portion  of  the  pro- 
duct will  be  devoted  to  reproduction  [replacement].  But  from 
the  moment  that  the  forced  labor  is  changed  into  wage-labor, 
from  that  moment  the  labor-fund,  which  the  peasant  himself 
continues  as  before  to  produce  and  reproduce,  takes  the  form 
of  a  capital  advanced  in  the  form  of  wages  by  the  lord." 

The  economists  of  Marx'  day  regarded  wages  as  advanced 
from  capital,  but  Marx  regards  wages  as  paid  from  current  pro- 
duct. He  says  that  it  is  only  here  and  there  on  the  face  of  the 
earth  that  what  laborers  receive  as  wages  is  not  what  laborers 
have  already  themselves  produced.3  He  complained  of  classical 

1  Capital,  p.  582.  * Ibid.,  p.  580-1.  *  MM.,  p.  581. 


395]  THE    SOCIALISTS  gg 

economy,  that  it  always  loved  to  conceive  social  capital  as  a 
fixed  magnitude  of  a  fixed  degree  of  efficiency.1 

As  will  be  seen  in  the  subsequent  treatment,  Marx  regards 
the  capital  of  a  country  as  constantly  changing  in  quantity, 
and  in  the  relative  proportions  of  its  elements.  Upon  these  two 
facts — accumulation  of  capital  and  the  change  in  the  constitu 
ents  of  capital — rests  the  fate  of  the  working  classes.  As  a 
first  step  in  the  argument,  we  must  make  clear  what  Marx 
meant  by  the  terms  constant  and  variable  capital.  In  the  pro- 
cesses of  production,  he  desired  to  place  in  clear  light  the  pre- 
cise part  which  labor  performed,  as  well  as  that  of  capital.  It 
is  a  common  observation  that,  under  ordinary  circumstances, 
values  in  means  of  production  are  perpetuated  in  their  products. 
Of  this  there  may  be  more  than  one  explanation.  One  com- 
monly entertained  is  that  capital  possesses  the  capacity  in  itself 
of  erecting  new  values  which  take  the  place  of  those  values 
dissipated  while  capital  is  performing  its  industrial  functions. 
This  view  Marx  rejects.  Another  explanation  is  that  capital 
has  no  such  capacity,  but  is  a  dead,  inanimate,  passive  complex 
of  things  upon  which  labor  operates.  Capital  can,  therefore, 
create  no  values  of  any  sort.2  But  human  labor  possesses  the 
capacity  to  transfer  values  from  capital,  in  which  values  already 
exist,  to  products.  And  this  labor  does  unconsciously  and 
inevitably  while  it  is  performing  another  function  as  well.  It 
is  a  common  observation  of  economic  life  that  products  possess 
greater  value  than  is  to  be  found  in  their  means  of  production. 
The  true  explanation  is,  according  to  Marx,  that  while  labor  is 
transferring  old  value,  it  is  also  creating  new  value.  Thus 
labor  performs  a  double  function  in  the  same  act.  In  the 
process  of  production  itself,  or  that  part  of  the  process  which 
is  represented  in  the  transferring  of  value,  no  quantitative 
change  in  value  occurs.  That  part  of  capital  which  is  repre- 
sented by  means  of  production,  by  the  raw  material,  auxiliary 

1 Capital,  p.  622.  *lbid.,  p.  383. 


IOQ  GERMAN  WAGE  THEORIES  [396 

material,  and  the  instruments  of  labor,  is  called  constant  capital. 
On  the  other  hand,  that  part  of  capital  represented  by  labor- 
power  does  in  the  process  of  production  undergo  an  alteration 
of  value.  "  It  both  reproduces  the  equivalent  of  its  own  value, 
and  also  reproduces  an  excess,  a  surplus-value,  which  may  itself 
vary;  may  be  more  or  less  according  to  circumstances.  This 
part  of  capital  is  being  continually  transformed  from  a  constant 
to  a  variable  magnitude,  and  is  called  variable  capital." ' 

Marx  opposes  the  idea  of  Adam  Smith  and  Ricardo,  that 
capital  in  its  ultimate  analysis  may  be  resolved  into  advances 
to  labor.  All  surplus  value  is  divided  into  means  of  produc- 
tion, and  the  direct  support  of  laborers.  It  is  illogical,  he  de- 
clares, to  admit,  as  Adam  Smith  did,  that  in  the  case  of  the 
individual  capitalist,  all  capital  does  take  these  two  directions, 
and  then  deny  it  for  the  capital  of  society.2 

Marx  does  not  minimize  the  importance  of  capital  as  a  pro- 
ductive agent.  He  shrinks  from  conceiving  it  as  possessing 
power,  preferring  to  regard  capital  as  loaded  with  value  trans- 
ferable by  labor.  Although  he  is  usually  an  unsparing  critic 
of  the  capitalist  class,  at  times  he  is  forced  to  give  capitalists 
credit  for  the  social  service  of  having  forced  the  human  race 
to  produce  and  develop  its  powers.  Without  the  capitalist, 
society  might  not  have  created  the  material  conditions  which 
alone  can  form  the  real  basis  of  a  high  form  of  society,  and  in 
which  the  full  development  of  every  individual  forms  the  ruling 
principle.3  But  in  performing  this  service,  the  capitalist  has 
exalted  the  principle  of  saving.  Accumulation  has  come  to  be 
the  law  and  the  prophets.  In  Marx's  view,  at  the  bottom  of 
all  accumulation  is  the  propensity  and  power  to  withhold  from 
labor  a  part  of  its  just  share  of  social  product.  But  capitalists 
are  charged  with  having  sometimes  forced  conditions  which 
result  in  adding  to  their  profits  at  the  expense  of  laborers' 
necessary  support.  Wages  are  forcibly  reduced  below  the 
value  of  labor  power. 

*  Capital,  p.  191-2.  a  Ibid.,  p.  60 1.  3  Ibid,,  p.  603. 


397]  THE  SOCIALISTS  IOI 

A  second  factor  in  accumulation  is  relief  from  the  necessity 
of  furnishing  capital  in  proportion  to  labor  employed.  Any 
given  capital  is  made  sufficient  by  requiring  longer  hours  in 
factories,  by  day  and  night  shifts  in  extractive  industries,  and 
by  the  reliance  upon  nature  in  agriculture  as  an  immediate 
source  of  greater  accumulation.  The  general  result  is  that 
"  by  incorporation  with  land  and  labor,  capital  acquires  a  power 
of  expansion  that  permits  it  to  expand  its  accumulation  be- 
yond the  apparent  limits  of  its  own  magnitude.1 

But  the  most  important  factor  in  accumulation  is  the  pro- 
ductivity of  social  labor.  All  nature  works  in  the  interest  ot 
the  capitalist.  While  machines  are  wearing  out,  and  having 
their  value  transferred  to  products,  science  and  technology  are 
making  their  advances,  the  results  of  which  are  incorporated 
in  the  new  machines  without  additional  burden  to  the  capitalist.1 
Then,  too,  labor's  capacity  to  transfer  value  from  capital  to 
product  in  the  very  act  of  creating  new  value,  is  nature's  gift, 
since  it  is  done  unconsciously  and  without  merit  on  labor's 
part.  Capital  in  this  case  is  nature's  beneficiary.  The  same 
fact  becomes  evident  if  we  regard  capital  from  another  stand- 
point. As  capital  increases  in  quantity,  the  difference  be- 
tween fixed  and  circulating  capital  (to  adopt  an  old  classifica- 
tion, but  excluding  wages  from  circulating  capital)  increases. 
That  is  to  say,  the  number  and  mass  of  those  things  which 
yield  up  their  utilities  but  slowly,  constantly  increase  in  pro- 
portion to  those  whose  utilities  are  transferred  at  once.  Now, 
just  so  far,  says  Marx,  as  those  things  which  lose  their  value 
piecemeal,  are  "  wholly  employed,  but  only  partially  consumed, 
they  perform  the  same  gratuitous  service  as  natural  forces, 
water,  steam,  air,  etc.  This  gratuitous  service  of  past-labor, 
when  filled  with  a  soul  by  living  labor,  increases  with  the 
advancing  stages  of  accumulation."  3 

This  general  idea  has  further  enforcement  by  a  course  01 

1 Capital,  p.  616.  *lbid.t  p.  617.  *  H>id.t  p.  620. 


J02  GERMAN  WAGE  THEORIES  [398 

argument  which  is  designed  to  show  the  influence  of  the  growth 
of  capital  upon  the  fate  of  the  laboring  class,  and  which  ends 
with  a  melancholy  picture  of  the  pauperism  to  which  the 
laboring  population  of  the  world  is  inevitably  tending  by  the 
very  essence  of  the  capitalistic  mode  of  production. 

Accumulation  and  consequent  growth  of  capital  yield  the 
following  results : 

I.  Diminution  of  the  mass  of  employed  labor  in  proportion 
to  the  mass  of  the  means  of  production. 

II.  Accelerated  diminution  of  variable  as    compared  with 
constant  capital. 

III.  Increase  of  surplus  population  more  rapidly  than  the 
diminution  of  the  variable  part  of  capital. 

Before  taking  these  points  in  order,  it  is  desirable  to  show  a 
direct  relation  between  accumulation  and  rate  of  wages.  A 
rise  in  wages  has  one  of  two  possible  meanings,  with  reference 
to  accumulation.  Either  it  does  not  interfere  with  accumula- 
tion, in  which  case  capital  is  in  excess,  not  because  labor 
power  or  labor  population  is  diminished,  but  because,  given 
excess  of  capital,  exploitable  labor-power  is  insufficient.  It  is 
not  a  case  of  stationary  capital  with  a  diminishing  population, 
but  one  of  increasing  accumulation,  and  not  enough  laborers 
for  capital  to  exploit  with  the  highest  advantage.  Or,  on  the 
other  hand,  accumulation  is  reduced  in  consequence  of  the  rise 
in  the  price  of  labor.  In  this  case  capital  is  insufficient,  not  be- 
cause of  increase  of  labor-power,  but  because,  by  a  relative 
diminution  of  capital,  there  exists  more  labor-power  than 
capital  can  exploit  to  the  advantage  of  accumulation.  The 
rate  of  accumulation  is  the  independent  variable ;  the  rate  of 
wages  is  the  dependent  one.  The  correlation  between  accumu- 
lation of  capital  and  rate  of  wages  is  nothing  else  than  the  cor- 
relation between  unpaid  labor  transformed  into  capital,  and 
paid  labor  necessary  to  set  the  capital  in  motion.  It  is  simply 
the  relation  between  paid  and  unpaid  labor  of  the  same  popula- 
tion. Wages  rise  whenever  the  quantity  of  unpaid  labor  in- 


399]  THE  SOCIALISTS 

creases  so  rapidly  that  its  conversion  into  capital  requires  an 
extraordinary  addition  of  paid  labor,  thus  diminishing  unpaid 
labor  in  proportion.  But  the  movement  of  the  rise  of  wages 
receives  a  check  whenever  this  diminution  touches  a  point  at 
which  surplus-population  which  nourishes  capital,  is  no  longer 
supplied  in  normal  quantity,  and  accumulation  lags.1 

The  first  of  the  above  propositions,  viz. :  that  the  mass  of 
employed  labor  diminishes  in  proportion  to  the  means  of  pro- 
duction,2 is  one  very  difficult  to  prove,  and  might  be  more 
difficult  to  deny.  The  fact  that,  in  modern  civilized  countries, 
wealth  increases  more  rapidly  than  population,  creates  a  pre- 
sumption that  means  of  production  increase  faster  than  em- 
ployed labor;  but  it  is  only  a  presumption.  Observation, how- 
ever, supports  the  view  that  as  time  proceeds,  of  the  total 
capital  employed,  a  larger  proportion  is  devoted  to  purchase 
and  maintenance  of  means  of  production.  The  diminishing 
proportion  goes  to  pay  for  labor-power.  It  is  desirable  that 
this  proposition  should  be  put  to  some  statistical  test  if  it  is  to 
be  used  as  a  step  in  an  argument.  But  Marx  does  not  do  that, 
but  is  satisfied  with  very  general  statements,  such  as  that  it  is 
brought  about  by  the  compound  ratio  of  impulses  which  the 
capitalistic  mode  of  production  and  accelerated  accumulation 
give  one  another,8  or  that  it  is  due  to  the  concentration  of 
wealth,  the  domination  of  larger  capitals,  or  the  credit  system. 

In  the  second  proposition,  we  have  a  more  radical  doctrine 
still.  It  is  that  variable  capital  diminishes  at  an  accelerated 
rate  as  compared  with  constant  capital.*  Variable  capital 
diminishes  more  rapidly  than  total  capital  increases.  Increased 
accumulation  and  concentration  of  capital  are  regarded  as  the 
source  of  this  new  change  in  the  composition  of  capital.  We 
are  not  furnished  with  the  proofs  of  the  alleged  fact,  nor  have 
we  any  convincing  account  of  causes. 

1 Capital,  363-4.  *Ibid.,  p.  636. 

3  Ibid.,  p.  639.  *  Ibid.,  p.  643. 


I04  GERMAN  WAGE  THEORIES  [4OO 

But  the  third  proposition  that  surplus  population  increases 
more  rapidly  than  the  diminution  of  the  variable  part  of  capital,1 
is  in  greater  need  of  demonstration  than  the  others ;  Marx,  how- 
ever, does  not  supply  it.  If  it  were  not  maintained  that  varia- 
ble capital  was  devoted  to  the  support  of  the  laboring  population, 
that  it  is  always  distributed  so  meagrely  as  to  supply  mere 
encessaries,  and  that  the  laboring  class  had  practically  no  other 
source  of  supply,  it  might  not  appear  out  of  place  to  hold  that 
population  managed  to  exhibit  signs  of  independence  of  the 
variable  capital  as  the  source  of  its  food  supply.  It  would  be 
quite  easy  to  believe  that  there  existed  no  such  strict  corre- 
spondence between  variable  capital  and  population,  as  to  pre- 
vent a  slight  relative  increase  or  diminution  of  either.  One 
might  even  admit  for  population  a  slower  movement  than  for 
variable  capital,  the  former  lagging  behind  the  latter.  One 
might  doubt  whether  population  could  increase  in  a  constant 
ratio  as  variable  capital  diminished  in  the  same  ratio ;  but  that 
population  should  actually  increase  faster  than  the  variable 
capital  diminishes,  and  that  too  not  for  short  periods,  but  con- 
tinually as  a  permanent  movement,  and  furthermore,  that  this 
movement  should  be  the  natural  fruit  of  accumulation,  needs 
a  logical  statement  of  social  and  industrial  sequences.  But 
this  is  just  what  Marx  does  not  give  us.  There  are  but  hints 
as  to  the  means  by  which  the  laboring  population  is  made 
superfluous.  Such  are  the  magnitude  of  social  capital,  the 
degree  of  its  increase,  the  extension  of  the  scale  of  production, 
and  of  the  mass  of  laborers  set  in  motion,  and  the  greater 
breadth  and  fullness  of  all  sources  of  wealth. 

These  doctrines,  supported  by  such  reasonings,  constitute 
the  theoretical  bases  for  Marx's  law  of  wages.  In  this  view, 
surplus  population  is  a  necessary  product  of  accumulation. 
There  is  provided  an  industrial  reserve  army  which  it  is  for 
the  interest  of  capital  to  have  on  hand  for  new  enterprises,  and 
as  a  general  source  of  exploitation. 

1  Capital,  p.  650. 


401]  THE  SOCIALISTS  IOij 

Marx  thinks  that  he  has  here  hit  upon  the  true  explanation 
of  general  wages,  which  must  be  distinguished  from  any  ex- 
planation of  local  wages.  When  the  older  economists  ex- 
plained a  rise  of  wages  as  a  consequence  of  increase  of  capital 
over  population,  and  a  fall  of  wages  as  a  consequence  of  in- 
crease of  population  over  capital,  representing  the  population 
as  in  prosperous  times  increasing  its  numbers  but  in  times 
of  misery  and  want  checking  the  increase,  the  explana- 
tion employs  a  local  or  temporary  cause  to  account  for  a 
general  or  permanent  movement.  A  working  population 
tends  to  distribute  itself  over  the  entire  field  of  production  in 
obedience  to  the  desire  for  the  largest  gain.  Where  capital  is 
found  in  relative  abundance,  there  capital  tends  to  accumulate; 
and  if  the  movement  has  given  any  locality  a  population  rela- 
tively too  large,  wages  fall  and  population  tends  to  diminish. 
This,  Marx  says,  is  an  accurate  description  of  the  relation  be- 
tween wages  and  the  distribution  of  population  over  the  differ- 
ent spheres  of  production.  But  it  would  be  untrue  to  conclude 
that  for  all  society  when  wages  rise,  population  increases  by 
reason  of  fewer  deaths  and  more  births  per  thousand;  and  that 
wages  again  fall  as  a  result  of  a  redundant  population,  because 
"before,  in  consequence  of  the  rise  of  wages,  any  positive  in- 
crease of  the  population  really  fit  for  work  could  occur,  the 
time  would  have  passed  again  and  again."1 

The  other  great  exponents  of  German  socialism  were  Rod- 
bertus  and  Lassalle.  Nothing  but  the  briefest  notice  of  their 
views  can  be  given  here.  Rodbertus,  like  Marx,  was  a  master 
mind,  and  it  is  noteworthy  that,  working  quite  apart,  they 
came  to  much  the  same  conclusions  on  many  important  points. 
Rodbertus,  when  he  seriously  compares  modern  laborers  with 
slaves,  states  as  strongly  as  possible  the  minimum  support  of 
labor  as  a  determinant  of  wages.  He  regards  the  unlimited 
right  to  the  fruit  of  one's  own  labor  as  the  natural  basis  and 
essence  of  property  right.  He  says  that  this  principle  is  con- 

i  Capital,  p.  651-3. 


I06  GERMAN  WAGE  THEORIES  [402 

tinuously  violated,  in  connection  with  the  ownership  of  land 
and  capital,  by  the  present  legal  economic  arrangements. 
That  laborers  have  the  fruit  of  their  labor  transferred  to  others 
is  due  to  positive  law  and  continual  force.1  Under  slavery,  the 
force,  instead  of  being  exercised  by  positive  law,  was  exercised 
by  the  masters.  They  took  the  product,  but  gave  the  slave  only 
as  much  as  was  necessary  for  the  continuation  of  his  labor. 
How  is  it  under  the  present  regime,  when  all  the  soil  and  all 
the  capital  have  been  made  subject  to  private  property?  As 
under  slavery,  the  product  belongs  not  to  the  laborers,  but  to 
the  "lords  of  capital  and  land.  As  under  slavery,  laborers 
are  comparatively  happy  if  they  secure  from  the  product  of 
their  own  labor  such  a  part  as  is  required  for  life's  support; 
/.  e.,  for  the  continuation  of  their  labor.  If  it  is  said  that  in 
place  of  slave  possession  we  have  free  contract,  it  must  be  an- 
swered that  the  contract  is  only  formally  free.  Hunger  has 
taken  the  place  of  the  whip.  What  was  formerly  called  fodder 
is  now  called  wages.2 

This  doctrine  has  become  a  fixed  article  in  the  theoretical 
economic  creed  of  the  German  working  men,  largely  through 
the  agitation  of  Lassalle,  who  never  lost  an  opportunity  to 
enforce  upon  the  Germans  that  their  wages  were  down  to  the 
subsistence  point,  and  that  they  were  kept  there,  under  pres- 
ent economic  arrangements,  by  a  law  as  inexorable  as  iron. 
As  an  authority  for,  and  an  expositor  of,  this  law  he  appealed 
to  Ricardo.  If  wages  rise  above  the  minimum  more  laborers 
are  born  into  the  world,  and  competition  reduces  their  re- 
muneration. If  wages  fall  below  the  minimum  labor  popula- 
tion fails  at  the  source,  and  again  demand  causes  wages  to  rise. 

It  will  not  escape  notice  that  on  this  point  Marx  and  Las- 
salle were  in  opposition.  Marx  endeavored  to  strike  deeper. 

1  Das  Kapital,  1884,  p.  214-5. 

3  ZurBeleuchtung  der  Socialen  Frage,  1875,  P-  33- 


CHAPTER  VII 

SCHULZE-GAEVERNITZ 

THE  reaction  against  the  wages-fund  theory,  which  was  first 
expressed  by  Hermann  and  and  carried  on  by  Brentano  and 
others,  is  issuing  forth  in .  a  group  of  thinkers  of  which 
Schulze-Gaevernitz1  is  an  important  member.  The  earlier 
reactionists  drew  attention  away  from  past  accumulation  in  the 
hands  of  employers,  as  the  true  source  of  wages,  to  that  of  the 
consumers'  income,  which  is  devoted  to  the  purchase  of  lab- 
orers' product.  The  latest  development  of  wage  theory  in 
Germany  holds  the  so-called  residual  theory,  and  points  to 
the  conclusion  that  in  the  evolution  of  centralized  industry 
(Grossbetrieb)  there  falls  to  labor  a  continually  more  favorable 
share  of  the  product.  This  view  is  summarized  in  three  pro- 
positions : 

(a)  In  respect  to  any  given  product  the  amount  of  reward 
which  accrues  to  capital  decreases,  not  only  absolutely,  but  also 
relatively  to  labor. 

(&)  The  amount  which  accrues  to  labor  decreases  absolutely 
with  reference  to  a  single  product,  but  increases  relatively. 

(c]  Within  a  defined  product  the  amount  falling  to  both 
capital  and  labor  absolutely  decreases  with  the  development  of 
centralized  industry.     The  process  is  a  cheapening  of  produc- 
tion in  favor  of  the  consumer. 

(d]  The  increase  of  the  national  product  makes  possible  for 
labor  and  capital   an  absolutely  greater  return,  with  the  de- 
velopment  of  industry,  but   the   share   of  capital   relatively 
decreases,  that  of  labor  relatively  increases.2 

1  See  his  Der  Grossbetrieb,  1892.  »  Der  Grossbetrieb,  p.  224. 

403]  107 


I0g  GERMAN  WAGE  THEORIES  [404 

It  is  held  that  in  the  earlier  period  of  the  modern  industrial 
evolution  the  laboring  classes  still  belonged  psychologically  to 
an  earlier  date.  Their  wages  were  more  or  less  near  to  the 
so-called  life  minimum.1  The  great  pioneers  of  industry,  with 
disposable  capital  in  their  hands,  had  a  double  advantage. 
First,  the  new  order  of  things  with  its  high  demand  for  capital 
gave  its  possessors  a  high  bargaining  power.  Hence,  interest 
was  extrordinarily  high.  Secondly,  the  talent  brought  to  bear 
in  the  new  fields,  being  of  a  rare  and  special  quality,  deserved, 
and  was  able  to  obtain,  great  rewards.  Both  these  forces, 
when  united  in  the  same  individuals,  as  they  usually  were,  in 
reference  to  the  ownership  and  management  of  a  given  body 
of  capital,  gave  them  such  advantage  in  the  industrial  order 
that  the  additional  values  created  by  the  new  organization 
fell  easily  into  their  hands.  They  may  be  said  to  have  re- 
ceived the  remainder  after  the  usual  costs  were  paid. 

Since  that  initial  period  of  capitalistic  production  to  the 
present  time  a  great  change  has  occurred.  Now  capital  has 
increased  enormously  and  interest  has  been  gradually  falling 
for  many  years.  And  talents  which  were  once  so  rare  no- 
longer  enjoy  the  monopoly  of  old.2  The  characteristics  of  the 
early  period  were :  high  costs  due  to  high  interest  and  high 
prices,  together  with  high  profits  due  to  the  element  of 
monopoly.3  Our  author  justifies  this  regime  on  the  grounds 
that  in  no  other  way  could  the  great  masses  of  capital,  which 
were  necessary  for  the  successful  conduct  of  business  in  the 
new  order,  be  brought  together,  that  the  habits  and  tradi- 
tions of  an  earlier  time  favored  a  comparatively  inferior  order 
of  men  in  the  industrial  field,  and  therefore  the  large  accumu- 
lations with  high  profits  were  necessary  to  win  capable  heads 
for  industrial  callings,  and,  furthermore,  that  these  capable 
heads  came  to  have  political  influence,  and  social  development 
was  pushed  forward  through  the  exercise  of  political  power  by 

1  Schulze-Gaevernitz,  Der  Grossbetricb,  p.  215. 

id.,  p.  2 1 8.  *  Ibid.,  p.  217. 


405  ]  SCHULZE-  GAE  VERNITZ  1 09 

the  industrial  element.  In  contrast  with  the  characteristics  of 
the  opening  period  of  modern  industry,  the  present  shows  low 
costs  due  to  low  interest,  and  the  substitution  of  more  produc- 
tive capital  for  labor;  low  prices  with  an  advantage  to  the 
poor  consumer,  the  laborer,  whose  real  wages  are  thereby  in- 
creased.1 The  struggle  to  lower  costs  is  a  leading  motive  and 
agency  in  centralized  industrial  development.  A  similar 
amount  of  capital,  because  of  technical  advance,  produces 
more  than  it  did  fifty  years  ago.  Interest  and  profit  have  not 
advanced,  hence  the  increasing  surplus  must  be  going  to  labor.2 
Edward  Atkinson,  whom  Schulze-Gaevernitz  so  often  quotes, 
puts  the  case  as  follows :  Wages  are  a  remainder  from  the  sale 
of  the  product.  To  ascertain  the  share  of  labor  the  following 
deductions  must  be  made : 

1.  Replacement  of  capital  used. 

2.  A  sum  equal  to  the  average  rate  of  profit  on  capital  in- 
vested in  the  very  safest  securities,  and  enough  in  addition  to 
cover  risks. 

3.  Cost  of  materials. 

4.  Cost  of  the  very  best  administration. 

5.  Taxation. 

The  remainder  constitutes  the  wages  of  labor,  whatever  that 
remainder  may  be.  Wages  constitute  all  there  is  left,  and 
under  the  inexorable  law  of  competition  of  capital,  the  profits 
of  capital  are  constantly  tending  to  a  minimum,  while  the  rate 
and  purchasing  power  of  wages  are  constantly  tending  to  a 
maximum.3 

Let  us  now  consider  first  the  implication  of  these  views,  and 
then  show  their  bases  in  theory.  That  laborers  are  abso- 
lutely better  off  now  than  they  were  in  the  early  part  of  the 
century,  there  can  be  little  doubt.  But  that  the  growing 
advantages  of  civilization  are  being  secured  more  fully  by  the 
laboring  classes  relatively  than  by  the  other  classes  in  society 

Schulze-Gaevernitz,  Der  Grossbetriebt  p.  219.  *  Ibid. 

'Atkinson,  The  Distribution  of  Products t  1885,  p.  70. 


IIO  GERMAN  WAGE  THEORIES  [406 

is  by  no  means  free  from  dispute.  The  question  cannot  be 
discussed  properly  apart  from  a  consideration  of  the  relative 
numbers  in  the  social  classes — those  who  live  directly  on  the 
proceeds  of  capital,  and  those  who  depend  upon  the  proceeds 
of  manual  labor.  Marx'  contention  that  there  always  exists  a 
reserve  army,  although  he  may  not  have  correctly  traced  a 
causal  connection  between  the  growth  of  such  a  reserve  and 
accumulation,  has  enough  truth  in  it  to  make  the  problem  of 
the  unemployed  one  of  grave  concern.  Concentration  of  indus- 
try is  certainly  eliminating  the  small  producer  and  small  dealer 
and  converting  them  into  laborers.  If  the  class  laborers  is 
constantly  growing  relatively  larger,  and  the  class  capitalists 
is  growing  relatively  smaller,  the  returns  to  capital,  though 
relatively  less  per  unit,  could  secure  to  the  capitalist  relatively 
more  as  a  whole  than  the  laborer  progressively  receives.  The 
question  of  concentration  of  property  is  of  great  importance, 
because  we  desire  to  know  not  so  much  the  progressive  retuin 
to  capital,  as  the  progressive  return  to  the  capitalist. 

Moreover,  the  annual  wealth  of  a  country  is  by  no  means 
measured  by  the  products  of  manufacture,  agriculture  and 
trade — using  these  terms  even  in  a  wide  sense;  but  must  in- 
clude the  increase  of  the  value  of  what  from  one  standpoint 
may  be  called  idle  property.  Such  are  city  lots  and  other 
property  that  increase  in  value  annually  by  mere  situation 
and  growth  of  population.  These  increased  values  accrue  to 
persons  as  owners.  Laborers  have  small  share  in  these 
increments. 

Further,  it  is  not  certain  what  these  authors  mean  by  capi- 
tal. What  is  often  called  capital,  and  upon  which  the  usual 
rate  of  interest  is  computed,  is  so  often  mere  "  water,"  and  rep- 
resents no  real  investment,  but  results  from  capitalization. 

It  is  not,  however,  with  the  alleged  fact  of  the  relative  gain  of 
capital  and  labor  in  growing  industry  that  we  have  in  this  essay 
primarily  to  do ;  but  rather  with  the  law  of  wages  according 
to  which  the  result  is  said  to  issue,  viz.,  that  wages  are  the 
residual  share  of  the  total  national  income  to  be  distributed. 


407] 


SCHULZE-  GAE  VERNITZ 


So  far  as  known  to  the  present  writer,  no  German  author 
has  formulated  in  detail  the  grounds  of  this  theory.  But  since 
the  residual  wage  theory  is  the  basis  of  Schulze-Gaevernitz' 
work,  it  is  desirable  to  make  some  examination  of  it. 

According  to  this  theory,  rent,  interest,  and  profits  are  each 
governed  in  amount  by  independent  laws,  while  wages  remain 
as  a  residual  share.  The  owners  of  land  receive  rent,  the  own- 
ers of  capital  receive  interest,  and  the  owners  of  undertakers* 
ability  receive  profits.  Rent  is  fixed  in  amount  by  the  Ricar- 
dian  law.  Interest  is  fixed  by  the  law  of  supply  and  demand. 
Profit,  the  share  of  the  undertaker  as  such,  which  hitherto  had 
been  confounded  with  the  capitalist's  share,  has  been  of  recent 
years  differentiated  as  the  peculiar  reward  for  initiating  and 
"captaining"  industry,  and  has  been  assimilated  to  the  law  of 
rent  for  the  use  of  land.  Francis  A.  Walker,  who  called  profits 
the  rent  of  ability,  has  the  credit  of  being  the  first  clearly  to 
expound  in  detail  this  theory  of  profits  as  well  as  the  residual 
theory  of  wages.  According  to  this  view,  profits  may  be  stated 
in  terms  of  the  law  of  rent;  profits  are  determined  by  the  dif- 
erences  existing  in  the  productiveness  of  different  abilities  or 
opportunities  of  employers  engaged  at  the  same  time  in  sup- 
plying the  same  market.1  Profits  range  from  the  return  to  the 
poorest  undertaker,  who  receives  ordinary  wages  and  who  is 
called  the  no-profit  undertaker,  to  the  return  which  is  limited 
only  by  business  ability. 

All  three  shares  are  so  determined  that  they  can  in  no  way 
interfere  with  the  laborer's  share.  Thus  runs  the  theory:  "un- 
less by  their  own  neglect  of  their  own  interests,  or  through 
inequitable  laws  or  social  custom  having  the  force  of  law,  no 
other  party  can  enter  to  make  any  claim  on  the  product  of  in- 
dustry, nor  can  any  of  the  three  parties  already  indicated  carry 
away  anything  in  excess  of  its  normal  share."2  This  state- 

1  Walker,  Political  Economy,  3d  ed.,  1  888,  p.  236;  Marshall,  Principles  of 
Economics,  2d  ed.,  1891,  Book  vii.,  ch.  v.,§  7. 
s  Walker,  Political  Economy,  1888,  p.  251. 


H2  GERMAN  WAGE  THEORIES  [408 

ment  of  the  theory  has  been  interpreted  to  mean  that  the 
laborer's  share  is  wholly  dependent  upon  the  laborer's  contri- 
bution to  the  total  product.1  This  conclusion  is  not  unnatural 
from  an  exclusive  attention  to  particular  parts  of  Walker's 
work,2  and  an  endeavor  to  connect  wages  and  laborer's  contri- 
bution from  the  statement  that  "  wages  equal  the  whole  pro- 
duct minus  rent,  interest  and  profits."3  But  attention  to  all 
that  Walker  has  written  on  the  question  of  distribution  makes 
it  reasonably  clear  that  he  did  not  intend  to  teach  a  strictly 
productivity  theory.  That  is,  he  did  not  attempt  to  establish 
any  identity  between  the  sum  of  values  received  as  wages,  and 
the  sum  of  values  produced  by  labor  in  the  productive  co- 
operation. He  attempted  to  show  that,  when  all  the  factors 
are  working  under  normal  conditions,  there  is  a  process  of 
carving  out  shares  from  the  total  product  by  all  the  productive 
factors  except  labor;  that  whatever  may  remain  after  the  slic- 
ing process  is  complete  goes  to  labor  as  its  share.  If,  now,  the 
total  product  is  increased  by  the  energy,  economy  or  care  of 
labor,  assuming  no  change  in  the  other  factors,  and  assuming 
the  absence  of  friction,  that  increase  goes  to  labor.  In  other 
words,  if  laborers  make  the  total  larger,  and  no  change  occurs 
in  the  efficiency  of  the  other  factors,  the  enlargement  of  labor- 
ers' remainder  equals  the  enlargement  of  the  total.  This  is  an 
identity  between  an  increment  of  product  attributable  to  labor 
and  an  increment  accruing  to  wages.  At  most,  by  this  theory, 
the  productivity  theory  applies  to  an  increment  and  does  not 
extend  to  total  wages.  "  So  far  as  by  their  energy  in  work,  their 
economy  in  the  use  of  materials,  or  their  care  in  dealing  with 
the  finished  product,  the  value  of  that  product  is  increased,  that 
increase  goes  to  them  by  the  force  of  natural  laws,  provided 
only  competition  be  full  and  free."  * 

1  Journal  of  Political  Economy,  v.  2,  pp.  77-87,  especially  pp.  8 1-2. 
*  See  especially  Wages  Question,  pp.  129,  130. 
8  Walker,  Political  Economy,  3d  ed.,  1 888,  p.  284. 
4  Walker,  Political  Economy,  p.  251. 


409]  SCHULZE-GAEVERNITZ  H3 

The  Germans  under  consideration  do  not  attempt  to  modify 
in  any  important  particular  the  main  feature  of  Walker's  theory. 
Hence  a  consideration  of  this  part  of  German  theory  calls  for 
no  extended  criticism.  Such  would  be  a  criticism,  not  of  the 
German  work,  but  of  that  of  President  Walker.  It  may  be  re- 
marked, however,  that  an  appreciation  of  the  strength  of  this 
theory  requires  a  careful  consideration  of  wage  conditions  for 
short  and  for  long  periods  of  time.  Attention  to  that  differ- 
ence might  have  saved  some  criticisms.  Walker  admits  that 
for  short  periods  his  theory  does  not  hold  true. 

When  we  have  made  all  allowances,  the  theory  fails  to 
satisfy  the  mind  completely.  An  efficient  competition  of  capi- 
tal is  assumed,  while  the  equally  at  times  efficient  competition 
of  labor  is  minimized.  Money  wages  are  for  the  most  part  in 
the  author's  mind,  and  there  is  hence  a  lack  of  definiteness  as 
to  the  true  relation  of  capital  to  wages,  and  no  determination 
of  consumable  goods  as  the  source  of  real  wages. 


POLITICAL  SCIENCE  QUARTERLY. 

A  review  devoted  to  the  historical,  statistical  and  comparative  study 
of  politics ,  economics  and  public  law. 


Plan.— The  field  of  the  Quarterly  is  indicated  by  its  title ;  its  object  is  to  give  the  result* 
of  scientific  investigation  in  this  field.  The  Quarterly  follows  the  most  important  movements 
of  foreign  politics,  but  dovotes  chief  attention  to  questions  of  present  interest  in  the  United 
States.  On  such  questions  its  attitude  is  non-partisan.  Every  article  is  signed  ;  and  ever/  arti 
cle,  including  those  of  the  editors,  expresses  simply  the  personal  view  of  the  writer. 

Editors. — The  Quarterly  is  under  the  editorial  management  of  theUniversityFaculty  of 
Political  Science,  Columbia  College. 

Contributors. — The  list  includes  university  and  college  teachers,  politicians,  lawyers, 
journalists  and  business  men  in  all  parts  of  the  United  States,  and  English  and  Continental  pro- 
fessors and  publicists.  Among  the  contributors  of  the  past  seven  years  have  been,  in  addition  to 
the  members  of  the  faculty : 

Prof.  H.  C.  Adams  (Mich.  U.),  Statistician  of  the  Interstate  Commerce  Commission ;  Pref. 
Andrews  (Brown  U.);  H.  O.  Arnold-Korster ;  Prof.  Ashley  (Toronto  U.);  H.  H.  Asquith,  M.P.; 
Sir  Geo.  Baden-Powell ;  Frederic  Bancroft,  Librarian  State  Dept.  U.  S.  A.;  Prof.  Bemis  (Van- 
derbilt  U.);  E.  G.  Bourne  (Western  Reserve  U.);  J.  E.  Bowen,  The  Independent ;  J.G.  Brooks 
(Harvard  U.);  E.  P.  Cheyney  (Penn.  U.);  Prof.  f.  B.  Clark  (Smith  Coll.);  Prof.  Cohn  (Gottin- 

g:n  U.);  Clarence  Deming,  New  Haven  News ;  Rev.  S.  W.  Dike;  Hon.  J.  F.  Dillon;  J.  P. 
unn,  Jr.,  State  Librarian  Vlnd.);  Prof.  Elliott  (Minn.  U.);  R.  P.  Falkner  (Penn.  U.);  Prof. 
Farnam  (Yale  U.);  W.  C.  Ford,  (formerly  of  the)  State  Dept.  U.  S.  A.;  Kuno  Francke  (Har- 
vard U.):  A.  Gauvain,  Le  Temps  (Paris);  Prof.  Giddings  (Bryn  Mawr  Coll.);  Prof.  Gide  (Mont- 
pellier,  France),  Revue  d' EC onomie  Politigue  ;  George  Gunton  ;  Prof.  Hadley  (Yale  U.);  Prof. 
Hart  (Harvard  U.);  Geo.  K.  Holmes,  Census  Bureau,  U.S.A.;  Prof.  Howard  (Neb.  U.);  Prof. 
Hudson  (Mich.  U.),  Prof.  Huff  (Vermont  U.);  Hon.  Wm.  M.  Ivins;  Prof.  James  (Penn.  U.); 
Hon.  John  A.  Jameson  ;  Prof.  Jenks  (Ind.  U.);  Rev.  Wm.  C.  Langdon  ;  Prof.  I.aughlin  (Cor- 
nell U.);  Hon.  Alfred  E.  Lee;  Prof.  Levermore  (Mass.  Tech.  Inst.);  Pres.  Low  (Columbia 
Coll.);  Prof.  Maitland  (Cambridge  U.);  Brander  Matthews:  J.  B.  Moore, State  Dept.  U.  S.  A.; 
Prof.  Morse  (Amherst  Coll.);  Prof.  G.  B.  Newcomb  (N.  Y.  City  Coll.):  Prof.  Patten  (Penn.U.); 
T.  B.  Perkins;  Fred.  Perry  Powers,  Chicago  Times;  E.  I.  Renick,  Treasury  Dept.,  U.  S.  A.; 
Hon.  Theodore  Roosevelt;  Hon.  Irving  B.  Richman ;  Hon.  Eugene  Schuyler;  Hon.  W.  L. 
Scruggs  ;  Prof.  Shaw  (Cornell  U.);  Freeman  Snow  (Harvard  UJ;  C.  B.  Spahr,  N.Y.  Commer- 
cial Advertiser ;  F.  J.  Stimson  ;  Prof.  Taussig  (Harvard  U.);  Prof.  Trent  (Sewanee  U.);  Pres. 
Walker  (Mass.  Tech.  Inst.);  Prof.  Warner  (Neb.  U.);  Prof.  Woodrow  Wilson  (Coll.  of  N.  J.); 
Horace  White,  N.  Y.  Evening  Post. 

Review*. — Each  number  contains  careful  reviews  by  specialists  of  recent  publications. 

Record.— The  Record  of  Political  Events,  published  twice  a  year,  gives  a  resume  of  politi- 
cal and  social  movements  throughout  the  world. 

Communications  in  reference  to  articles,  reviews  and  exchanges,  should  be  addressed  to  Prof 
W.  A.  DUNNING,  Columbia  University,  N.Y.  City.  Subscriptions  should  be  forwarded 
and  all  business  communications  addressed,  to  GINN  «t  COMPANY,  70  Fifth  Ave.,  N.  Y 
City  ;  180  W  abash  Ave.,  Chicago ;  9  and  13  Tremont  Place,  Boston. 


Yearly  Subscription,  Three  Dollars.     Back  Numbers  and  bound  Vol- 
umes can  be  obtained  from  the  publishers. 


Systematic  Political  Science 


BY  THE 


FACULTY  OF  POLITICAL  SCIENCE  OF 
COLUMBIA  UNIVERSITY.    . 


The  Faculty  of  Political  Science  of  Columbia  University  have 
in  course  of  publication  a  series  of  systematic  works  covering  the 
entire  field  of  political  science  proper  and  of  the  allied  sciences  of 
public  law  and  economics.  The  method  of  treatment  is  historical, 
comparative  and  statistical;  and  it  is  the  aim  of  the  writers  to  pre- 
sent the  latest  results  of  institutional  development  and  of  scientific 
thought  in  Europe  and  America. 

The  series  includes  the  following  ten  works : 

Political  Science  and  Comparative  Constitutional  Law 

2  vols.     Published  by  Ginn  &>  Co.,  i8gi.     By  JOHN  W.  BURGESS. 

Comparative  Administrative  Law. 

2  vols.     Published  by  G.  P.  Putnam's  Sons,  1893.     By  FRANK  J.  GOODNOW. 

International  Law.    In  preparation.        .       .       By  JOHN  BASSETT  MOORE. 
Historical  and  Comparative  Jurisprudence. 

In  preparation By  MUNROE  SMITH. 

The  Distribution  of  Wealth.    2  vols.    In  preparation.    By  JOHN  B.  CLARK. 

The  Science  of  Statistics.     2  vols.      Vol.  I,  published  by  the  Columbia   Uni- 
versity Press  (Macmillan),  1895.         .        By  RICHMOND  MAYO-SMITH. 

Historical  and  Comparative  Science  of  Finance. 

2  vols.     In  preparation.     By  EDWIN  R.  A.  SELIGMAN. 

The  Principles  of  Sociology.     Published  by   the    Columbia    University   Press 
{Macmillan),  1896.         .        »        .        .       By  FRANKLIN  H.  GIDDINGS. 

History  of  Political  Theories     In  preparation.        By  WILLIAM  A.  DUNNING. 
Literature  of  Political  Science.    In  preparation.    .      By  GEORGE  II.  BAKER. 


RECENT  PUBLICATIONS 


AMERICAN  ECONOMIC  ASSOCIATION. 


VOLUME  XI. 

Nos.  i,  2  and  3.     Race  Traits  and  Tendencies  of  the  American  Negro. 

By  F.  L.  Hoffman,  F.S.S.    Price,  $1.25;  cloth,  $2.00. 
No.  4.     Appreciation  and  Interest.  By  Irving  Fisher,  Ph.  D.   Price,  75  cents. 

NEW    SERIES. 


No.  x. 


The  Cotton  Industry :  An  Essay  in  American  Economic  His- 
tory.    By  M.  B.  Hammond,  Ph.  D.    Price,  $1.50  ;  cloth,  $2.00. 


No.  i. 
No.  2. 
No.  3. 


No.  4. 


ECONOMIC!   STUDIES- 

(Issued  bi-monthly.) 

VOLUME  II. 
The  General  Property  Tax  in  California.   By  Carl  C.  Plehn,  Ph.  D. 

Price,  jo  cents. 
Area   and    Population  of  the   United  States   at   the   Eleventh 

Census.     By  Walter  F.  Willcox,  Ph.  D.    Price,  50  cents. 
A  Discussion  Concerning  the  Currencies  of  the  British  Planta- 
tions in  America,  etc.  By  William  Douglass.  Edited  by  Charles 
J.  Bullock,  Ph.  D.    Price,  jo  cents. 

Density  and  Distribution  of  Population  in  the  United  States  at 
the  Eleventh  Census.  By  Walter  F.  Willcox,  Ph.  D.  Price, 
jo  cents. 

VOLUME  III. 

No.  i.     Government  by  Injunction.     By  William  H.  Dunbar,  A.  M.,  LL.B. 

Price,  jo  cents. 
No.  2.     Economic  Aspects  of  Railroad  Receiverships.     By  H.  H.  Swain, 

Ph.  D.    Price,  jo  cents. 

Price  of  each  of  the  first  ten  volumes  of  Monographs,  unbound,  $4.00  each. 
Bound  in  cloth,  $5.00  each  for  a  single  volume,  $4.00  for  each  additional  vol- 
ume. The  set  often  bound  volumes,  $41.00,  sent  prepaid.  Price  of  Volume  Eleven, 
unbound,  $2.00  ;  bound  in  cloth,  $2.50.  Price  of  each  volume  of  the  Studies,  un- 
bound, $2.50  ;  bound  in  cloth,  $3.00.  Any  bound  volume  will  be  sent  post-paid 
to  members  for  fj  cents  in  addition  to  the  unbound  numbers,  if  returned  pre- 
paid in  %ood  condition.  Copies  are  also  offered  in  half  morocco,  at  jo  cents  per 
volume  additional  to  the  price  in  cloth. 

Separate  subscriptions  by  non-members,  libraries,  etc.,  for  the  Studies,  $2.50 
per  year ;  or  $4.00  for  all  the  publications.  Any  single  Monograph  may  be  ob- 
tained at  the  price  given  in  the  list. 

One-sixth  Discount  to  Members  and  Subscribers  on  all  Orders. 


Address    subscriptions,    applications 
for  membership  and  inquiries  to  the 

Secyy  American  Economic  Association, 
Ithaca,  N.  Y. 


Address    orders  for    Studies  and 
Monographs  to  the  publishers, 

THE  MACMILLAN  CO., 
66  fifth  Avenue,  New  York. 


JOHNS  HOPKINS  UNIVERSITY 

Studies  in  History  and  Politics. 

Edited  by  HERBERT  B.  ADAMS. 

SIXTEENTH  SERIES. — i8g8. — Subscription,  $3.00. 

I -IV.    The  Neutrality  of  the  American  Lakes  and  Anglo-American  Relations.    By 

J.  M.  CALLAHAN.    $i  .50. 
V.    'West  Florida  in  its   Relation  to  the  Historical  Cartography  of  the  United 

States.     By  HENRY  E.  CHAMBERS.    250. 

VI.    Anti-Slavery  Leaders  of  North  Carolina.     By  JOHN  SPENCER  BASSBTT. 
VII.     The  Life  and  Administration  of  Sir  Robert  Eden.     By  BERNARD  C.  STEINBR. 
VIII.     The  Transition  of  North  Carolina  from  a  Colony  to  a  State.     By  E.  W.  SIKES. 
IX.     The  History  of  State  Banking  in  Maryland.     By  ALFRED  COOKMAN  BRYAN. 
X.    The  Maryland  and  Virginia  Boundary  Controversy.     By  Louis  N.  WHBALTON. 
XI.     The  Labadist  Colony  in  Maryland.    By  B.  B.  JAMBS. 

XII.    Early  Development  of  the  Chesapeake  and  Ohio  Canal  Project.    By  GEORGE 
W.  WARD. 

Other  papers  will  be  announced  from  time  to  time. 


ANNUAL  SERIES,  1883-1897. 

SERIES  I. — Local  Institutions.    479  pages.    $4.00. 
SERIES  II.— Institutions  and  Economics.     629  pages.    $4.00. 
SERIES  III. — Maryland,  Virginia  and  Washington.     595  pages.    $4.00. 
SERIES  IV. — Municipal  Government  and  Land  Tenure.    600  pages.    $3.00. 
SERIES  V. — Municipal  Government,  History  and  Politics.     559  pages.    $3.50. 
SERIES  VI. — The  History  of  Co-operation  in  the  United  States.     540  pages.    13.50. 
SERIES  VII. — Social  Science,  Municipal  and  Federal  Government.    628  pages.  13.50. 
SERIES  VIII. — History,  Politics  and  Education.     625  pages.     8vo.    $3.50. 
SERIES  IX.— Education,  History  and  Politics.    640  pages.     8vo.    $3.50' 
SERIES  X. — Church  and  State:  Columbus  and  America.    630  pages.     8vo.    $3.50. 
SERIES  XI. — Labor,  Slaves  and  Self-Government.     574  pages.     8vo.    $3.50. 
SERIES  XII. —  Institutional  and  Economic  History.     626  pages.     8vo.    $3.50. 
SERIES  XIII. — South  Carolina,  Maryland  and  Virginia.     606  pages.     8vo.    $3.50. 
SERIES  XIV.— Baltimore,  Slavery  and  Constitutional  History.    592pp.    8vo.    $3.50. 
SERIES  XV.— American  Economic  History.     618  pp.    8vo.    $3.50. 


RECENT   EXTRA  VOLUMES. 

The  Supreme  Court  of  the  United  States.    By  W.  W.  WILLOUGHBY.  124  pp.  8vo.  $1.15. 
The  Intercourse  between  Japan  and  the  United  States.    By  INAZO  (OTA)  NITOBB.    198 

pp.    8vo.     $1.25. 
Spanish  Institutions  of  the  Southwest.    By  FRANK  W.  BLACKMAR.  380  pp.  and  31  plates. 

8vo.    $2.00. 

Introduction  to  the  Study  of  the  Constitution.  ByM.M.CoHN.  asopp.  8vo.  $1.50. 
The  Old  English  Manor.     By  C.  M.  ANDREWS.    280  pp.    8vo.    $1.50. 


America  :  Its  Geographical  History,  1492-1892.     By  W.  B.  SCAIFB.     176  pp.  8vo.    £1.50. 
Florentine  Life  During  the  Renaissance,     by  W.  B.  SCAIFE.     256  pp.     8vo.   $1.0. 
The  Southern  Quakers  and  Slavery.     By  S.  B.  WEEKS.     414  pp.    8vo.    $2  oo. 


Contemporary   American  Opinion  of  the  French  Revolution.     By  C.  D.  Hazen.     325 

pp.    8vo.    $2.00. 
Industrial  Experiments  in  the  British  Colonies  of  North  America.    By  E.  A.  LORD. 

162  pages.     8vo.     cloth. 

The  set  of  fifteen  series  is  now  offered,  uniformly  bound  in  cloth,  for  library  use, 
for  $45,  and  including  subscription  to  the  current  (fifteenth)  series,  for  $48.00. 
The  fifteen  series,  with  sixteen  extra  volumes,  in  cloth  as  above,  for  $66.00. 


All  business  communications  should  be  addressed  to' THE  JOHNS  HOPKINS 
PRESS,  Baltimore,  Maryland. 


American  Academy  of  Political  and  Social  Science, 

Founded  Dec.  14,  1889.  Chartered  Feb.  14,  1891. 

President,  EDMUND  J.  JAMES.  Treasurer,  STUART  WOOD. 

Corresponding  Sec'y,  H.  R.  SF.AGER. 

Persons  interested  in  the  political  and  social  sciences  are  eligible 
for  membership.  The  annual  membership  fee  is  $5.00.  The  pub- 
lications of  the  Academy  in  the  form  of  the  ANNALS  are  sent  to 
each  member  free  of  charge.  A  full  account  of  the  Academy  and 
its  work  will  be  sent  on  application. 


RECENT  PUBLICATIONS. 

Intervention  and  the  Recognition  of  Cuban  Independence. 

By  Prof.  A.  S.  Hershey,  University  of  Indiana.     Price,  250. 
Proposed  Reforms  of  the  Monetary  System. 

By  Prof.  J.  F.  Johnson,  University  of  Pa.     Price,  25C. 
The  Quantity  Theory  of  Money. 

By  Prof.  W.  A.  Scott,  University  of  Wisconsin.     Price,  i5c. 
Industry  and  Machinery  in  the  United  States. 

By  Prof.  E.  Levasseur,  Paris.     Price,  25c. 

A  Comparative  Study  of  the  State  Constitutions  of  the  American  Revo- 
lution. 

By  W.  C.  Webster,  Esq.,  New  York.     Price,  3$c. 
Railway  Pooling. 

By  Hon.  Martin  A.  Knapp,  Washington.     Price,  35 c. 
The  Union  Pacific  Railway. 

By  Dr.  John  P.  Davis,  Brooklyn.     Price,  35C. 

The  First  Apportionment  of  Federal  Representatives  in  the  United  States. 
By  Professor  Edmund  J.  James,  University  of  Chicago.  Price  35C. 
Postal  Savings  Banks. 

By  Edw.  T.  Heyn,  Esq.,  New  York.     Price,  25c. 
Principles  of  Sociology. 

By  Professor  Lester  F.  Ward,  Washington.     Price,  25c. 


The  ANNALS,  the  official  organ  of  the  Society,  is  in  its  eleventh 
volume.  A  complete  catalogue  of  over  200  publications  will  be  sent 
on  application.  Address 

flrnerican  flcaderay  of  Political  and  Social  Science, 

STATION  B,  PHILADELPHIA. 


New  Books  on  the  Social  and  Political 
Aspects  of  United  States  History. 

AflERlCAN  HISTORY  AS  TOLD  BY  CONTEMPORARIES. 

By  ALBERT  BUSHNELL  HART,  Professor  of  History,  Harvard  University. 

Vol.  I.      ERA  OF  COLONIZATION.    (1493-1689.)    Ready. 

Vol.  II.    BUILDING  OF  THE  REPUBLIC.     (1689-1783.)    Almost  ready. 

Vol.  III.  NATIONAL  EXPANSION.     (1783-1845.)     To  follow. 

Vol.  IV.  WELDING  OF  THE  NATION.     (1846-1896.)     To  follow. 

This  series  is  made  up  entirely  from  the  original  sources  of  American  history,  the  records  and 
narratives  of  men  who  witnessed  and  sharrd  in  the  events  which  they  describe.  Extracts,  long 
enough  in  each  case  to  give  some  idea  of  the  writer's  style,  are  arranged  in  a  logical  sequence,  so 
as  to  make  up  a  general  account  of  the  times  from  the  first  voyages  to  the  present  day.  To  each 
volume  is  prefixed  a  Practical  Introduction  on  the  use  of  sources  by  teachers,  students,  pupils, 
libraries,  and  readers,  with  a  bibliography  of  the  most  valuable  sources  and  collections. 

It  is  hoped  that  these  volumes  may  aid  in  the  proper  teaching  and  study  of  American  history, 
by  putting  within  the  reach  of  classes  some  of  the  illustrative  material  which  supplements  and 
makes  more  vivid  the  regular  narrative  histories.  Every  pains  will  be  taken  to  make  exact  tran- 
scripts, and  to  suggest  proper  secondary  accounts  parallel  with  the  narratives  selected. 


THE  STUDY  OF  CITY  GOVERNMENT. 

An  Outline  of  the  Problems  of  Municipal  Functions,  Control  and 

Organization. 

By  DELOS  F.  WILCOX,  A.  M.,  Ph.  D. 
Crown  8vo.     Cloth.     Price,  $1.50  net. 

"  It  is  not  too  much  to  say  that '  The  Study  of  City  Government '  is  indispensable  to  the  student 
of  municipal  affairs.  It  is  certain  that  the  man  who  wishes  to  acquaint  himself  with  the  problems 
indicated  can  find  no  better  outline.  *  *  *  The  appended  bibliography,  which  is  one  of  the  best 
ever  printed  on  the  subject,  shows  how  comprehensive  has  been  Mr.  Wi  cox's  study;  and  the 
style  of  the  book  proves  his  wide  reading  to  have  been  well  digested." — Times-Herald,  Chicago. 


Published  for  the  Columbia  University  Press  by  The  Macmillan  Co. 

MUNICIPAL  PROBLEMS. 

By  FRANK  J.  GOODNOW,  LL.  D., 

Professor  of  Administrative  Law,  Columbia  University  in  the  City  of  New  York. 
Author  of  "Municipal  Home  Rule,"  etc. 

iSmo.     Cloth.     $1.50  net. 

"  This  is  a  scholarly,  thoughtful  and  independent  criticism  of  municipal  experiences  and  the 
plans  now  urged  to  better  municipal  conditions.  The  volume  is  an  exceedingly  valuable  one  to 
close  students  of  municipal  affairs." — The  Outlook,  New  York. 

"  We  doubt  if  any  author  has  achieved  such  eminent  success  in  the  solution  of  the  difficult 
problems  of  city  government  as  the  author  of  the  present  work." — Times  Union,  Albany. 


MUNICIPAL  HOME  RULE. 

A  Study  in  Administration. 
By  FRANK  J.  GOODNOW,  LL.  D., 

Professor  of  Administrative  Law,  Columbia  Uuiversity  in  the  City  of  Kew  York. 
Cloth.     i6mo.     $1.50  net. 

COMMENTS. 

"  We  question  if  any  other  book  before  has  achieved  quite  the  important  service  to  what  may 
be  termed  theoretic  municipalism.  .  .  .  One  that  all  those  interested  in  municipal  matters  should 
read.  .  .  .  Moderate  in  tone,  sound  in  argument,  and  impartial  in  its  conclusions,  it  is  a  work 
that  deserves  to  carry  weight." — London  Liberal. 

"  Here  is  without  doubt  one  of  the  most  trenchant  and  scholarly  contributions  to  political 
science  of  recent  writing,  remarkable  for  analytical  power  and  lucidity  of  statement." — Chicago 
Evening  Post. 

The  Macrnillan  Company,  66  Fifth  fivenfce,  Neu)  York. 


Tb?  Macmillan  Company's  TeJjf-Books. 

FOR  STUDENTS  OF  THE  HISTORY 
AND  INSTITUTIONS  OF  THE  UNITED  STATES. 

Now  Ready.    Price,  $1.75  Net. 
Bryce's  American  Commonwealth  for  Student's  Use. 

Revised  by  Mr.  BRYCE,  with  the  assistance  of  Prof.  JESSS  MACY,  of  Iowa 
College.  This  is  not  a  mere  condensation  of  the  larger  work,  but  a  restatement, 
briefer  and  in  a  form  more  carefully  adapted  to  use  as  a  text- book,  of  the  valuable 
material  in  Mr.  Bryce's  "American  Commonwealth,"  a  knowledge  of  which  is 
conceded  to  be  indispensable  to  any  one  who  would  acquire  a  just  estimate  of 
American  Institutions. 

By  Prof.  Charming  of  Harvard  University. 

The  United  States  of  America,  1765=1865. 

By  EDWARD  CHANNING,  Professor  of  History  in  Harvard  University. 
Cambridge  Historical  Series,  $1.5O  Net. 

"  The  knowledge  of  history  displayed  by  the  author  is  vast,  his  grasp  of  the  subject  is  firm, 
and  his  style  is  admirably  clear,  direct,  and  simple." — The  Critic. 


By  Goldwin  Smith,  D.  C.  L. 

The  United   States. 

An  Outline  of  Political  History,  1492-1871. 

3d  Edition.    With  Map.    Crown  8vo.    $2.OO. 

"Is  a  literary  masterpiece,  as  readable  as  a  novel,  remarkable  for  its  compression  without 
dryness,  and  its  brilliancy  without  any  rhetorical  effort  or  display.  What  American  could,  with 
so  broad  a  grasp  and  so  perfect  a  style,  have  rehearsed  our  political  history  from  Columbus  to 
Grant  in  300  duodecimo  pages  of  open  type,  or  would  have  manifested  greater  candor  in  his 
judgment  of  men  and  events  in  a  period  of  four  centuries  ?  It  is  enough  to  say  that  no  one  before 
Mr.  Smith  has  attempted  the  feat,  and  that  he  has  the  field  to  himself." — The  Nation. 


Sources  of  The  Constitution  of  the 
United  States. 

Considered  in  Relation  to  Colonial  and  English  History. 

By  C.  ELLIS  STEVENS,  LL.  D.,  D.  C.  L.,  F.  S.  A.     (EoiN.) 

I2mo.     Cloth.    $2.OO  Net. 

Second  Edition. 

"The  volume  is  one  which  merits  the  most  careful  attention  of  the  students  of  our  institutions, 
since  it  presents  more  fully  and  proves  more  conclusively  than  does  any  other  work  the  theory 
that  our  constitution  was  not,  as  Mr.  Gladstone  said,  '  a  most  wonderful  work  struck  off  at  a 
given  time  by  the  brain  and  purpose  of  man,'  but  is  rather  an  embodiment  in  a  logical  form  of 
institutions  which  had  been  the  growth  of  centuries.  .  .  .  One  of  the  most  interesting  chapters  of 
Mr.  Stevens'  volume  is  that  in  which  he  treats  of  the  judiciary.  It  has  been  generally  admitted 
that  the  model  of  our  state  courts  is  English,  but  so  distinguished  an  authority  as  Sir  Henry 
Maine  says  that  there  is  no  exact  precedent  for  our  supreme  court  either  in  the  ancient  or  mod- 
ern world.  Mr.  Stevens,  however,  shows  as  we  take  it  most  conclusively  that  in  no  particular 
does  our  constitution  more  conform  to  English  models  than  in  this  very  matter  of  the  supreme 
court,  and  that  in  every  respect  it  rests  upon  colonial  and  English  precedents." — Boston  Daily 
Advertiser. 

THE  MACMILLAN  COMPANY,  Publishers, 

NEW  YORK.  CHICAGO.  SAN  FRANCISCO. 


IMPORTANT  WORKS  OK  THE  QUESTIONS  OF  THE  DAY,  VIZ., 
Gold,  Silver,  Trusts,  Taxation,  Strikes,  and  Political  Economy. 


BASTABLE.-Public  Finance.  By  C.  F. 
BASTABLE,  M.  A.,  LL.  D.,  Professor  of  Po- 
litical Economy  in  the  University  of  Dublin. 
Second  Edition.  Revised  and  Enlarged. 
8vo.  $4.00,  net. 

BOHM-BAWERK.-Capital  and  Inter- 
est. By  EUGENE  V.  BOHM-BAWERK. 
Translated,  with  a  Preface  and  Analysis,  by 
WILLIAM  SMART.  8vo.  fa.oo. 

BOHM-BAWERK.-The  Positive  The- 
ory Of  Capital.  Translated  with  a  Preface 
and  Analysis,  by  WILLIAM  SMART,  M.A. 
8vo.  (4.00. 

COMMONS.— The  Distribution  of 
Wealth.  By  JOHN  R.  COMMONS,  Professor 
of  Economics  and  Social  Science,  Indiana 
University.  121110.  $1.75,  net. 

CUNNINGHAM.— The  Growth  of  En- 
glish Industry  and  Commerce  in 
Modern  Times.  By  W.  CUNNINGHAM. 
8vo.  $4.50. 

DAVENPORT.— Outlines  of  Economic 
Theory.  By  HERBERT  JOSEPH  DAVEN- 
PORT. I2mo.  Cloth,  52.00,  net. 

DEL  MAR. --The  Science  of  Money.  By 
ALEXANDER  DEL  MAR.  Second  Edition. 
Revised  by  the  Author.  8vo.  $2.25. 

DYER. -The  Evolution  of  Industry.  By 
HENRV  DYER,  C.  E.,  M.  A.,  D.  Sc.,  etc. 
lamo.  $1.50. 

FONDA.— Honest  Money.  By  ARTHUR  I. 
FONDA,  ismo.  £1.00. 

HORTON.— The  Silver  Pound  and  Eng- 
land's Monetary  Policy  Since  the 
Restoration,  Together  with  the  His- 
tory Of  the  Guinea.  Illustrated  by  Con- 
temporary Documents.  By  S.  DANA  HOK- 
TON,  a  Delegate  of  the  United  States  of 
America  to  the  International  Monetary  Con- 
ference of  1878-1881.  8vo.  $4.00. 

HORTON.— Silver  in  Europe.  By  S. 
DANA  HORTON.  Second  Edition,  Enlarged. 
i2ino.  $7.50,  net. 

HOWELL.— A  Handy-Book  of  the  La- 
bor Laws.  Being  a  Popular  Guide  to  the 
Employers  and  Workmen  Act,  1875  ;  Trade- 
Union  Acts,  1871,  1876,  and  1893,  etc.  With 
Introductions,  Notes,  and  the  Authorized 
Rules  and  Forms  for  the  Use  of  Workmen. 
By  GEORGE  HOWBLL,  F.  S.  S.,  M.  P.  Third 
Edition,  Revised,  izmo.  $1.50. 


JEVONS.— Investigations  in  Currency 
and  Finance.  By  W.  STANLEY  JEVONS, 
LL.  D.,  M.D.,  F.R.S.  Illustrated  by 
Twenty  Diagrams.  Edited,  with  an  Intro- 
duction, by  H.  S.  Foxwt-.LL,  M.A.  8vo. 
$7-5°. 

MALLOCK.— Classes  and  Masses,  or 
Wealth,  Wages,  and  Welfare  in  the 

United  Kingdom.  A  Handbook  of  Social 
Facts  for  Political  Thinkers  and  Speakers. 
i6mo.  $1.25. 

MALLOCK.— Labor   and  the  Popular 

Welfare.     New  edition.     12010.    90  cts. 

MAYO-SMITH.— Statistics  and  Sociol- 
ogy. By  RICHMOND  MAYO-SMITH,  Ph.D., 
Professor  of  .'olitical  and  Social  Science  in 
Columbia  University.  8vo.  $3.00,  net. 

NICHOLSON.-A  Treatise  on  Money 
and  Essays  on  Monetary  Problems. 

By  J.  SHIKLD  NICHOLSON,  M.  A.,  D.  Sc., 
Third  Edition.  With  a  New  Second  Part  of 
A  Treatise  on  Monty.  I2mo.  $2.00. 

Strikes  and  Social  Problems.    11.25. 

PLEHN.— Introduction  to  Public  Fi- 
nance. By  CARL  C.  PLEHN,  Ph.  D.,  As- 
sistant Professor  in  the  University  of  Cali- 
fornia. J2mo.  Cloth,  pp.  xii.+364.  Price, 
$1.60,  net. 

ROUSIER  .— The  Labor  Question  In 
Britain.  By  PAUL  DB  ROUSIRRS.  With 
a  Preface  by  Henri  de  Tourville.  Trans- 
lated by  F.  L.  D.  HBRBBRTSON,  B.A.  8vo. 
£4.00  net. 

SELIGMAN.— Essays  in  Taxation.  By 
EDWIN  R  A.  SELIGMAN,  Professor  of  Polit- 
ical Economy  and  Finance,  Columbia  Uni- 
versity. 8vo.  $3.00,  net. 

SMART.— Studies  in  Economics.  By 
WILLIAM  SMART,  M.  A.,  LL.D.,  Lecturer 
on  Political  Economy  in  the  University  of 
Glasgow,  izmo.  $1.25. 

SMART.— An  Introduction  to  the  The- 
ory of  Value  on  the  Lines  of  Menger, 
Wieser,  and  Bbhm-Bawerk.  By  WILL- 
IAM SMART,  M.  A.  i2mo.  $1.25. 

VON  HALLE.— Trusts,  or  Industrial 
Combinations  and  Coalitions  in  the 

United  States.  By  ERNST  VON  HALLE. 
izmo.  $1.25. 


PUBLISHED    BY 


THE  MACMIIiLAXT  COMPACTS, 

66  Fifth.  Avenue,  New  Tork. 


THE  "  FOREIGN  STATESMEN  "  SERIES. 

Edited  by  Professor  J.  B.  BURY. 

Author  of"  A  History  of  the  Later  Roman  Empire.'''     Uniform  with  the 
"  Twelve  English  Statesmen''  Seriet. 


Cloth.  Crown  Octavo.  Price,  per  volume,  75  cents. 


The  new  series  does  not  aim  at  including  every  statesman  who  has  made  his 
mark  in  the  history  of  his  country ;  it  is  necessarily  limited  to  a  selection  from 
those  who  have  exercised  a  guiding  influence  on  the  course  of  European  affairs, 
and  impressed  their  memory  deeply  on  the  minds  of  men. 

Richelieu.    BY  RICHARD  LODGE. 

"  After  a  careful  reading  of  the  present  volume,  one  is  constrained  to  say 
that  Professor  Lodge  has  accomplished  his  difficult  task  with  unqualified  suc- 
cess."— Philadelphia  Evening  Bulletin. 

Philip  Augustus.     By  WILLIAM  HOLDEN  HUTTON. 

"  No  one  will  fail  to  appreciate  the  importance  of  the  subject  of  this  particu- 
lar volume.  .  .  .  The  tone  of  the  writer  is  candid,  and  the  book  will  be  found 
attractive  reading." — The  Boston  Transcript. 

Maria  Theresa.    Joseph  II.    Two  volumes.    By  REV.  J.  FRANCK  BRIGHT. 

"  The  work  will  appeal,  and  with  most  abundant  reason,  to  those  who  seek 

a  careful,  not  highly  colored,  not  strongly  shaded,  picture  of  Austrian  history, 

and  of  European  history  as  it  affected  Austria  at  one  of  the  most  interesting 

periods  in  the  development  of  central  Europe.1' — The  Outlook. 

Philip  II.  of  Spain.    By  MARTIN  A.  S.  HUME. 

"  A  model  book  of  its  kind ;  brief,  competent  and  accurate." — The  Nation. 

William  The  Silent.    By  FREDERIC  HARRISON. 

"  The  proportion  and  unity  of  the  narrative  are  admirable.  There  is  no 
better  brief  biography  of  William  of  Orange  in  existenre." — The  Tribune, 
Chicago. 

Charles  The  Great.    By  THOMAS  HODGKIN,  D.  C.  L. 

"  It  requires  no  little  skill  to  construct  from  all  the  material  a  narrative  that 
shall  be  brief  as  well  as  clear.  But  that  difficult  task  the  author  has  performed." 
—  The  Evening  Transcript,  Boston,  Mass. 

Mirabeau.    By  P.  F.  WILLERT. 

"  A  straightforward  story,  which,  without  cloaking  Mirabeau's  defects  or 
exaggerating  his  virtues,  enables  the  reader  to  understand  the  fascination  of  the 
orator's  personality.  The  work  is,  of  its  kind,  a  classic." — London  Illustrated 
Nnvs. 

VOLUMES  IN  PREPARATION. 

Louis  XI.    By  G.  W.  PROTHERO.      Ferdinand.      By  E.  ARMSTRONG. 

Mazarin.    By  ARTHUR  HASSALL.      Catharine  II.    By  J.  BURY. 

Louis  XIV.     By  H.  O.  WAKEMAN.    Cavour.     By  the  Countess  CESARESCO. 


MUNICIPAL   AFFAIRS. 


A  QUARTERLY  MAGAZINE  DEVOTED  TO  THE 

CONSIDERATION     OF     CITY    PROBLEMS     FROM    THE     STANDPOINT 
OF  THE  TAXPAYER  AND  CITIZEN. 


Among  the  subjects  already  discussed  are  the  following : 

Should  New  York  Own  Its  Gas  Supply  ?    A  Controversy. 

Recreation  Piers. 

The  Relations  of  the  City  and  the  State. 

The  Finances  of  New  York  City. 

Municipal  Statistical  Offices  in  Europe. 

The  Gas  Question  in  Philadelphia. 

Business  Men  in  Civic  Service. 

Public  vs.  Private  Operation  of  Street  Railways. 

Municipal  Art.    A  Symposium. 

Improved  Tenement  Houses  for  American  Cities. 

Greater  New  York  a  Century  Hence. 

Municipalization  of  Electric  Light  and  Power. 

The  City's  Health. 

City  Playgrounds. 

Municipal  Civil  Service. 

Other  papers  of  equal  importance  and  interest  follow. 


Besides  the  leading  articles,  each  number  contains  a  Bibliographical  Index  of  all 
the  literature  that  has  appeared  during  the  preceding  quarter,  thus  making  it  pos- 
sible to  ascertain  in  a  few  moments  what  articles,  pamphlets,  books  and  reports 
have  appeared  upon  any  phase  of  city  government;  Digests  of  Periodical  Litera- 
ture, which  are  exceedingly  valuable  to  the  busy  reader  who  wishes  to  secure  the 
gist  of  the  best  articles  without  extended  reading,  and  Book  Reviews  of  the  most 
important  works,  by  persons  entirely  familiar  with  the  various  subjects. 


Subscription  price  only  $1. 00  per  year.  Single  numbers  25  cents  each, 
(Except  Vol.  I,  No.  /,  containing  Bibliography,  price  of  which  is  50  cents.) 


Address  all  communications  to 

COMMITTEE  ON  MUNICIPAL  ADMINISTRATION, 

52  WILLIAM  STREET,  NEW  YORK  CITY. 


AMD  PFRHPTAW 

AJN1J  lUGLlt  LAW 

EDITED   BY  THE 

FACULTY  OF  POLITICAL  SCIENCE  OF  COLUMBIA  UNIVERSITY. 


VOLUME  1, 1891-2.    Second  Edition,  1897.    396  pp. 

Price,  $3.00 ;  bound,  $3.50. 
I,  The  Divorce  Problem — A  Study  in  Statistics. 

By  Walter  F.  Willcox,  Ph.  D.     Price,  750. 

a.  The  History  of  Tariff  Administration  in  the  United  States,  from  Co- 
lonial Times  to  the  McKinley  Administrative  Bill. 

By  John  Dean  Goss,  Ph.  D.     Price,  $1.00. 

3.  History  of  Municipal  Land  Ownership  on  Manhattan  Island. 

By  George  Asbton  Black,  Ph.  D.     Price,  $z.oo. 

4.  Financial  History  of  Massachusetts. 

By  Charles  H.  J.  Douglas,  Ph.  D.     (Not  sold  separately.) 

VOLUME  II,  1892-93.    503  pp. 

Price,  $3.00  ;  bound,  $3.50. 

i.  The  Economics  of  the  Russian  Village. 

By  Isaac  A.  Hourwich,  Ph.  D.     Price,  $1.00. 
a.  Bankruptcy.     A  Study  in  Comparative  Legislation. 

By  Samuel  W.  Dunscomb,  Jr.,  Ph.  D.     Price,  $1.00. 
3.  Special  Assessments  :  A  Study  in  Municipal  Finance. 

By  Victor  Rosewater,  Ph.  D.     Second  Edition,  1898.     Price,  $1.00. 

VOLUME  III,  1893.    465pp. 

Price,  $3.00 ;  bound,  $3.50. 

1.  History  of  Elections  in  the  American  Colonies. 

By  Cortlandt  F.  Bishop,  Ph.  D.     Price,  $1.50. 
Vol.  Ill,  no.  i,  may  also  be  obtained  bound.     Price,  $2.00. 

2.  The  Commercial  Policy  of  England  toward  the  American  Colonies. 

By  George  L.  Beer,  A.  M.     Price,  $1.50. 

VOLUME  IV.  1893-94.    438  pp. 

Price,  $3.00;  bound,  $3.50. 

1.  Financial  History  of  Virginia.  By  W.  Z.  Ripley,  Ph.  D. — Price,  $1.00. 

2.  The  Inheritance  Tax.  By  Max  West,  Ph.  D. — Price,  $1.00. 

3.  History  of  Taxation  in  Vermont. 

By  Frederick  A.  Wood,  Ph.  D. — Price,  $1.00. 


VOLUME  V,  1895-96.    498  pp. 

Price,  $3.00  ;  bound,  $3.50. 

1.  Double  Taxation  in  the  United  States. 

By  Francis  Walker,  Ph.  D. — Price,  $1.00. 

2.  The  Separation  of  Governmental  Powers. 

By  William  Bondy,  LL.  B.,  Ph.  D. — Price,  $1.00. 

3.  Municipal  Government  in  Michigan  and  Ohio. 

By  Delos  F.  Wilcox,  Ph.  D. — Price,  $1.00. 

VOLUME  VI,  1896.    601  pp. 

Price,  $4.00;  bound,  $4,50. 
History  of  Proprietary  Government  in  Pennsylvania. 

By  William  Robert  Shepherd,  Ph.  D.— Price,  $4.00;  bound,  $4  50. 

VOLUME  VII,  1896.    512  pp. 

Price,  $3.00  ;  bound,  $3.50. 

i.  History  of  the  Transition  from  Provincial  to  Commonwealth  Govern- 
ment in  Massachusetts.  By  Harry  A.  Gushing,  Ph.  D.  Price,  $2.00. 

a.  Speculation  on  the  Stock  and  Produce  Exchanges  of  the  United 
States.  By  Henry  Crosby  Emery,  Ph.  D.  Price,  $1.50. 

VOLUME  VIII,  1896-98.    551  pp. 

Price,  $3.50 :  bound,  $4.00. 

i.  The  Struggle  between  President  Johnson  and  Congress  over  Recon- 
struction.    By  Charles  Ernest  Chadsey,  Ph.  D. — Price,  $1.00. 
a.  Recent  Centralizing  Tendencies  in  State  Educational  Administration. 
By  William  Clarence  Webster,  Ph.  D.     Price,  750. 

3.  The  Abolition  of  Privateering  and  the  Declaration  of  Paris. 

By  Francis  R.  Stark,  LL.  B.,  Ph.  D.     Price,  $1.00. 

4.  Public  Administration  in   Massachusetts.     The  Relation  of  Central 

to  Local  Activity.    By  Robert  Harvey  Whitten,  Ph.  D.  Price,  $1.00. 

VOLUME  IX,  1897-98.    617  pp. 

Price,  $3.50  ;  bound,  $4.00. 

1 .  English  Local  Government  of  To-day.    A  Study  of  the  Relations  of  Cen- 

tral and  Local  Government.  ByMilo  Roy  Maltbie,  Ph.  D.  Price,  $2.00. 

Vol.  IX.,  no.  I,  may  be  also  obtained  bound.     Price,  $2.50. 

2.  German  Wage  Theories.     A  History  of  their  Development.     By  James 

W.  Crook,  Ph.  D.     Price,  $1.00. 

3.  The  Centralization  of  Administration  in  New  York  State.     By  John 

Archibald  Fairlie,  Ph.  D.     Price,  $1.00. 

The  set  of  nine  volumes  is  offered  for  $25 ;  bound,  $30. 

For  further  in  formation  apply  to 

Prof.  EDWIN  E.  A.  SELIGMAN,  Columbia  University, 

or  to  THE  MACMILLAN  COMPANY,  New  York, 
London  Agents,  P.  S.  KING  AND  SON,  Bridge  Street,  Westminster. 


Vte 


